Time deposit facts for kids

A time deposit is a special type of savings account at a bank. It's also called a term deposit in some places like Canada, Australia, and New Zealand. When you put money into a time deposit, you agree to leave it there for a set amount of time. You can't take it out before this time is up without possibly paying a penalty. In return for keeping your money there, the bank usually pays you more interest than a regular savings account.

What is a Time Deposit?

A time deposit is like making a deal with a bank. You promise to keep your money with them for a specific period. This period is called a "term." Terms can be short, like a few months, or long, like several years. Because your money is locked away, the bank knows it can use it for a while. This allows them to offer you a better interest rate.

How Do Time Deposits Work?

When you open a time deposit, you choose how much money to put in. You also pick the length of the term. For example, you might choose to deposit $100 for one year. The bank will tell you the interest rate you will earn. This rate is usually fixed, meaning it won't change during your term.

Why Use a Time Deposit?

People use time deposits for a few main reasons.

• Earn More Money: They often pay higher interest rates than regular savings accounts. This means your money grows faster.
• Save for Goals: They are great for saving for a specific future goal. This could be a new video game console, a college fund, or a car.
• Discipline: Since you can't easily take money out, it helps you avoid spending it. It encourages good saving habits.

What Happens at the End?

When the term ends, your money becomes available again. This is called the "maturity date." You can then choose what to do with it.

• Withdraw: You can take out all your money, including the interest you earned.
• Renew: You can put the money into a new time deposit. This is called "rolling it over." You might choose a new term or a different amount.
• Transfer: You can move the money to another account, like a checking or regular savings account.

Time Deposits vs. Savings Accounts

It's helpful to understand the differences between time deposits and regular savings accounts.

• Access to Money: With a regular savings account, you can take out your money anytime. Time deposits lock your money for the chosen term.
• Interest Rates: Time deposits usually offer higher interest rates. Regular savings accounts often have lower, sometimes changing, rates.
• Flexibility: Savings accounts are very flexible for daily needs. Time deposits are less flexible but offer better returns for long-term savings.

Time deposits are a smart way to save money if you don't need it right away. They help your money grow steadily over time.