Term Deposit
Term deposits, commonly known as fixed deposits or certificates of deposit, are a type of investment offered by banks where you deposit a sum of money for a fixed period, ranging from a few months to several years, at a predetermined interest rate. Here's a detailed breakdown:
1. *Term Length*: You choose the duration of the deposit, typically ranging from a few months to five years or more. The longer the term, the higher the interest rate usually offered.
2. *Interest Rates*: Banks offer fixed interest rates for the entire duration of the deposit. These rates can vary depending on factors like the amount deposited, the term length, and prevailing market conditions.
3. *Interest Payments*: Interest can be paid out periodically (monthly, quarterly, annually) or compounded and paid out at the end of the term. Compound interest means you earn interest on both the principal amount and any interest already earned.
4. *Minimum Deposit*: Banks usually require a minimum deposit amount to open a term deposit account. This amount varies from bank to bank.
5. *Penalties for Early Withdrawal*: If you withdraw your money before the end of the term, you may incur penalties, such as forfeiting a portion of the interest earned or paying a fee.
6. *Safety*: Term deposits are generally considered safe because they are typically insured by government deposit insurance schemes, protecting your investment up to a certain limit (e.g., FDIC in the U.S., CDIC in Canada).
7. *Liquidity*: Unlike savings accounts, term deposits are less liquid because your money is locked in for the duration of the term