Time deposit
Encyclopedia
A time deposit is a money deposit at a banking institution that cannot be withdrawn for a certain "term" or period of time (unless a penalty is paid). When the term is over it can be withdrawn or it can be held for another term. Generally speaking, the longer the term the better the yield on the money. A certificate of deposit
is a time-deposit product.
The opposite is a demand deposit
also known as sight deposit or "on call" which can be withdrawn at any time, without any notice or penalty; e.g., money deposited in a checking account or savings account in a bank.
The rate of return is higher than for savings accounts because the requirement that the deposit be held for an integer multiple of the term gives the bank the availability to invest it in a higher gain financial product class. However the return on this type of product is generally lower than that of investments in riskier products like stocks or bonds.
A deposit of funds in a savings institution is made under an agreement stipulating that (a) the funds must be kept on deposit
for a stated period of time, or (b) the institution may require a minimum period of notification before a withdrawal is made.
includes funds that can be used directly in payment, such as money market mutual funds and money market deposit accounts (MMDAs). MMDAs are considered by the United States Federal Reserve (the Fed) to be savings account
s and are thus exempt from reserve requirements. These large transaction accounts not being included in the M1 money supply suggests that the Fed does not pay much attention to ordinary deposit
s, and in July 2000, it announced that it was no longer setting target ranges for growth rates of the money supply.
Certificate of deposit
A certificate of Deposit is a time deposit, a financial product commonly offered to consumers in the United States by banks, thrift institutions, and credit unions....
is a time-deposit product.
The opposite is a demand deposit
Demand deposit
Demand deposits, bank money or scriptural money are funds held in demand deposit accounts in commercial banks. These account balances are usually considered money and form the greater part of the money supply of a country.-History:...
also known as sight deposit or "on call" which can be withdrawn at any time, without any notice or penalty; e.g., money deposited in a checking account or savings account in a bank.
The rate of return is higher than for savings accounts because the requirement that the deposit be held for an integer multiple of the term gives the bank the availability to invest it in a higher gain financial product class. However the return on this type of product is generally lower than that of investments in riskier products like stocks or bonds.
A deposit of funds in a savings institution is made under an agreement stipulating that (a) the funds must be kept on deposit
Deposit account
A deposit account is a current account, savings account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the...
for a stated period of time, or (b) the institution may require a minimum period of notification before a withdrawal is made.
US time deposits regulations
The "M2" definition of money supplyMoney supply
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...
includes funds that can be used directly in payment, such as money market mutual funds and money market deposit accounts (MMDAs). MMDAs are considered by the United States Federal Reserve (the Fed) to be savings account
Savings account
Savings accounts are accounts maintained by retail financial institutions that pay interest but cannot be used directly as money . These accounts let customers set aside a portion of their liquid assets while earning a monetary return...
s and are thus exempt from reserve requirements. These large transaction accounts not being included in the M1 money supply suggests that the Fed does not pay much attention to ordinary deposit
Transaction deposit
In the United States, transactions deposit is a term used by the Federal Reserve for checkable deposits and other accounts that can be used directly as cash without withdrawal limits or restrictions. They are the only bank deposits that require the bank to keep reserves at the central bank...
s, and in July 2000, it announced that it was no longer setting target ranges for growth rates of the money supply.
Small-denomination time deposit
"Small" time deposits in M2 are defined as those under $100,000.Large-denomination time deposit
"Large" time deposits are currently defined as deposits larger than $100,000. The term "jumbo CD" is commonly used in the United States. Some banks, recognizing that customers do not want more in the bank than is covered by insurance, have lowered the "jumbo CD" minimum requirement to $95,000, so with compounded interest the total falls below the insurance limit.See also
- Certificate of depositCertificate of depositA certificate of Deposit is a time deposit, a financial product commonly offered to consumers in the United States by banks, thrift institutions, and credit unions....
- Guaranteed Investment CertificateGuaranteed Investment CertificateA Guaranteed Investment Certificate or GIC is a Canadian investment that offers a guaranteed rate of return over a fixed period of time, most commonly issued by trust companies or banks. Due to its low risk profile, the return is generally less than other investments such as stocks, bonds, or...
- Federal Deposit Insurance CorporationFederal Deposit Insurance CorporationThe Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...
- Money supplyMoney supplyIn economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...