In this article, we’re explaining what is a “term deposit”, meaning a fixed term deposit account.
This article is part of our free series on how to open a bank account in the United States without an SSN or ITIN, which you can learn more about here right now.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Term Deposit Meaning
- Benefits of a Term Deposit
- Term Deposit vs Fixed Deposit
- Frequently Asked Questions
- Do You Want Help Opening US Bank Accounts?
Term Deposit Meaning
Term deposit, meaning a deposit held for a specified period of time, is a type of savings account offered by banks and other financial institutions. When account holders open a term deposit, they commit to maintaining the balance for a specific period. In exchange for maintaining the balance during this period, banks typically offer much more attractive interest rates than those available on standard savings accounts.
Benefits of Term Deposits
The benefits of term deposits include higher interest rates, guaranteed returns, secure investments, medium term access to capital, and deposit insurance up to 250,000 in the United States. Additionally, while term deposits are fixed, certain banks will offer release of funds before the term expires, though this generally incurs a penalty.
Banks and other financial institutions also benefit from term deposits because they guarantee a portion of deposits will be held on account for a specific period of time. This can help banks with cash management and regulatory requirements.
Here is a closer look at the benefits of term deposits.
Benefits of Term Deposits
- Higher interest rates
- Guaranteed returns
- Secure investments
- Medium-term access to capital
- Deposit insurance (250k in the USA)
- Immediate access to capital (with penalty)
Term Deposit vs Savings Account
The main difference between a term deposit account and a savings account is that a term deposit involves a longer-term commitment by the account holder to maintain the deposit, with a savings account, the account holder can access their funds at any time.
Due to the longer-term commitment made by the account holder, banks and other financial institutions typically offer significantly more attractive interest rates on a term deposit account than they do on standard savings accounts.
Term Deposit vs Fixed Deposit
There is no difference between a term deposit and a fixed deposit. Term deposit and fixed deposit mean exactly the same thing, which is a long-term deposit account that the account holder commits to maintaining for a fixed period of time.
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Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into what the meaning of term deposit is. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
Is Term Deposit a Good Idea?
A term deposit is a good idea if you have excess funds sitting with a bank that you do not require immediately but may require in the short to medium term. That said, depending on the country and financial institution that a term deposit is held with, there are risks with maintaining deposits over a long period of time.
What Happens When Term Deposits Matures?
What happens when a term deposit matures depends on the individual that holds the deposit. In many cases, they can choose to “roll over” the deposit for another term of the same length. Alternatively, they can choose a term deposit of a different length. Or they can add the balance and interest from the term deposit to their checking or savings account.
What Is a Five-Year Term Deposit?
A five-year term deposit refers to a deposit that an individual has committed to maintain with a bank or other financial institution for a period of five years. In exchange for this commitment, banks will typically offer an attractive interest rate that is substantially higher than the interest they offer on-demand accounts like standard savings and checking accounts.
Is a Term Deposit Tax-Free?
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