Time Deposits: Advantages and Disadvantages Explained

Time deposits are a method of saving offered by banks to their clients. The client deposits a sum of money in the bank for a certain period of time and in exchange for having this amount “locked” the bank gives them an interest fee.

Why would banks offer this service?

Banks use the money from deposits and invest them in other projects and businesses with a higher return than the interest rate offered to the client. Other times the bank uses the deposit to loan other clients also with a higher interest rate than that offered to the original client.

Advantages of time deposits:

• The main advantage is that it is guaranteed and the risk involved is almost minimal since the bank guarantees a specific interest that will always be added to your account unlike if you invest in the stock market for example which carries the risk of businesses going down or fluctuating prices.
• The interest rate on a time deposit is higher than that of a saving account since the bank is confident the money will remain deposited for the agreed term which is usually in years.
• You can get a credit card guaranteed by a percentage of the time deposits.

Find out the difference between time deposits & certificates of deposit

Disadvantages of time deposits:

• You can’t touch the money until the deposit duration ends and if you decide to break the deposit you have to pay a fine.
• Time deposits have lower interest return then other investment methods.
• You won’t get a high return unless the deposit amount is large.

If the central bank lowers the interest rate it will be applied to your time deposit automatically and you will end up getting a lower return.