Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Time Deposit

What it is:

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 it works (Example):

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 it Matters:

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.