time deposit
A bank deposit that must remain for a specified term to earn the agreed interest rate — primarily certificates of deposit — penalizing early withdrawal.
Example
“The 12-month time deposit paid 5% APY — but early withdrawal would forfeit 90 days of interest.”
Memory Tip
TIME DEPOSIT = money locked for a TIME period. CDs are time deposits. Higher rate for less flexibility.
Why It Matters
Time deposits help you earn higher interest rates than regular savings accounts because you commit to leaving your money untouched for a set period. Understanding this term is crucial for building savings strategies and knowing which accounts match your financial goals and timeline.
Common Misconception
Many people think they can withdraw their money from a time deposit whenever they want with no penalty, similar to a regular savings account. In reality, accessing your funds early typically results in a significant penalty that reduces your earned interest or even your principal.
In Practice
If you deposit $5,000 into a 12-month certificate of deposit earning 4.5% annual interest, you would earn $225 by the end of the year. However, if you need the money after 6 months and withdraw early, you might lose 3 months of interest as a penalty, receiving only $112.50 in gains instead of the full $225.
Etymology
TIME (requires a specified period) DEPOSIT. Funds DEPOSITED for a specified TIME period.
Common Misspellings
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