Time Deposit

Written By
Paul Tracy
Updated November 4, 2020

What is a Time Deposit?

A time deposit is an interest-bearing deposit held by a bank or financial institution for a fixed term whereby the depositor can only withdraw the funds after giving notice.

How Does a Time Deposit Work?

Time deposits generally refer to savings accounts or certificates of deposit, and banks and financial institutions usually require 30 days notice for withdrawal of these deposits.

Why Does a Time Deposit Matter?

Individuals and companies often consider time deposits as cash, or readily available funds, even though they are technically not payable on demand. The notice requirement also means that banks may assess a penalty for withdrawal before a specified date.

Time deposits may pay higher interest rates than demand deposits such as checking or money market accounts, which allow withdrawals at any time. The Federal Reserve currently does not place reserve requirements on savings deposits and CDs.

Time deposits below $100,000 are included in the Federal Reserve's M2 money supply measure, and time deposits above $100,000 are included in the M3 money supply.

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