Time deposit is known in different terms such as bond, certificate of deposit or terms deposit. Although it’s called differently in different countries, it works basically the same. You will be depositing at least the minimum amount required by the bank and keep it saved there for a certain duration. The interest rate that you’ll earn varies from one bank to another. The length of time would also depend on your choice, but it could last for a year or more. You may also choose the frequency on when you would get the payment for your interest if it lasts over a year. If you’re considering saving your money on a time deposit, it’s best to weigh it pros and cons to determine if it’s the best choice for you.
Time Deposit Pros
Secured Returns of Investment
Unlike other forms of investments like stocks, you can be sure that you’ll get your investment returns. You will know exactly how much you’ll get and when you’ll get them. If you don’t want to gamble in investing, this is one of the safest ways to invest your money.
Higher Interest Rate
The interest rate is higher than regular savings deposit. This is because the bank will be able to use your money on other matters and earn from the interest throughout the duration of your time deposit. You will be able to earn more in the long run.
Low Investment Amount
Many banks require time deposit for as low as $500. This is a lot cheaper than investing on a property or a business, which again may not bring you the same security of investment returns than time deposit.
If you’re having difficulties controlling yourself in saving money, this is a great way to push yourself to save. The amount you deposit would be put away for a specific time so you will not be able to use it because doing so would incur you early withdrawal fee and other charges.
Choose Frequency of Payment
Most banks pay the interest at the maturation of the time deposit if its duration is for a year. However, you would usually be given the choice on the frequency of your payment if it has longer duration. So you can be paid four times, twice or once a year, or you may also choose to reinvest it to earn compound interest.
Easier to Get the Money
If it reaches the maturation, you can get your money easily, which may not be the same as when you invest in a property or stock, as it would take time to sell them.
Time Deposit Cons
Incur Early Withdrawal
If you need the money for emergency use and the deposit didn’t reach its maturation yet, you will incur early withdrawal or charges.
Withdraw Money Without Charges Only Upon Maturation
If you don’t want to incur charges for early withdrawal, you wouldn’t be able to use your money even for emergency purposes. This means that you need to make sure that you have enough cash to spend for your needs and unexpected expenses.
No Advantage on Tax
There’s no tax advantage that you would get for time deposit.
Interest Rate is Fixed for the Duration of the Deposit
If the interest goes up during the time that your money is deposited, you will not be able to take advantage of this.
Weigh the pros and cons carefully before deciding to put your money in time deposit.
Featured and 1st image courtesy of Stuart Miles at FreeDigitalPhotos.net
2nd image by Image courtesy of Stuart Miles at FreeDigitalPhotos.net