Investor Education Centre > Useful Tips & Knowledge > What’s the difference between a ‘time deposit’ and a ‘term deposit’?
What’s the difference between a ‘time deposit’ and a ‘term deposit’?
Term deposits are an incredibly popular form of investment here in Australia. Term deposits are sometimes referred to as time deposits, and technically speaking, these two terms can be used interchangeably.
In this article, we’ll examine what, if any, are the differences between term and time deposits. Then, we’ll walk you through what this method of investing involves and what the benefits may be.
Let’s get started right away.
Time deposit vs term deposit: what’s the difference?
‘Term deposit’ is a relatively broad term for fixed deposits – that is, deposits that are locked away for a set amount of time at a fixed interest rate. Term deposit accounts typically offer higher interest rates than conventional savings accounts, so are a popular choice among investors looking for a reliable and secure way to build their wealth.
‘Time deposit’ is simply another name for these types of investments. For the most part, these two phrases can be used to describe the same products. It is worth noting, however, that the word ‘term’ implies a longer investment period. The word ‘time,’ on the other hand, implies a shorter investment period. So, in some cases, this may be the differentiating factor between term and time deposits.
What are term deposits and how do they work?
As we mentioned above, a term deposit is a type of cash investment that is secured at a financial institution for a set period of time. Over this period, your investment earns an agreed upon, fixed rate of interest.
Once the money is deposited, it cannot typically be withdrawn without penalty until the set period is over. This could be as soon as one month or as long as five years.
Why invest in a term deposit?
The primary reason savvy investors opt to invest in a term deposit is security. Term deposit investments are not subjected to market fluctuations. Instead, the investor can calculate the exact returns they will earn.
Here are a few of the other advantages of investing in a term – or time – deposit:
Term deposits usually offer higher interest rates
If you’ve looked into high-interest savings accounts but weren’t impressed by current interest rates, you’re not alone. Savings account interest rates are not what they used to be, so investors – particularly investors looking to deposit over $100k – are turning to term deposit accounts.
Term deposits usually deliver higher interest rates, not to mention locked-in rates that are immune to the state of the market. From there, it’s simple math: higher interest rates mean a greater return on your investment.
Term deposits protect your investment against temptation
If you’re the kind of person who is easily tempted, a term deposit could be the ideal investment strategy for you. Accessing your funds before the agreed period has ended generally incurs a penalty. This should deter you from dipping into your savings to make unnecessary purchases.
Are there any drawbacks to term deposits?
As with any investment, term deposits do have a few drawbacks:
You can’t readily access your money without penalty, which, in the case of an emergency, may be an issue.
If interest rates increase, you will not benefit. Remember, you will earn a fixed rate right the way through the agreed term.
This website contains general information only and is not intended to provide any person with financial advice. It does not take into account any person's (or class of persons) investment objectives, financial situation or particular needs, and should not be used as the basis for making investments.