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What is a Term Deposit?

Also known as time deposit, it is a money deposit made at a banking institution that cannot be withdrawn for a certain ‘period of time’ or ‘term’, hence the name term deposit. Time deposit is known by different names in different countries. In the countries of Canada, Australia and New Zealand it is known by the name term deposit. At the end of a term, the money can be withdrawn or can be held for another term. Longer the term better is the yield of money that accumulates through the time deposit rate of various banks respectively. Quite often term deposits are indexed to stock markets, bond markets and many other indices.

The interest rates for a term deposit follow a few guidelines as follows,

* Larger principal amounts should ensure higher interest rate.
* Smaller institutions quite often tend to offer higher interest rates than larger ones.
* The interest rate is directly proportional to the duration of the term for which the money is held with the banking institution, except during recessions.
* Personal time deposit accounts are liable to higher interest rates than business time deposit accounts.

Term Deposits also come with a set of terms and conditions set by the banking institution and approved by its parent body. Some of the common terms and conditions are as follows,

* The banking institution may close the time deposit before the term ends.
* The interest may be paid as and when it is accrued or may accumulate in the time deposit.
* The interest calculation for the time deposit may begin from the date of deposit or from the start of the next month or the next quarter.
* The institution may or may not alert the customer on automatically renewing the time deposit. It may however specify a grace period before automatically rolling over to a new time deposit maturity date.
* The withdrawal of principal may be at the discretion of the financial institution. Withdrawal of principal of any sort may require closure of the entire deposit.
* The bank may charge a nominal fee for withdrawing or closure or for providing ‘certified cheques’ that certifies that sufficient funds exist in the bank account of the customer to cover the cheque.

Some of the types of Term Deposits similar to the conventional Term Deposits in Canada are,

BUMP UP Term Deposits:
These allow the customer to bump up or increase the interest rate once during the term of the term deposit. This rate change however does not change the maturity date.

LIQUID Term Deposits:
These allow the customer to withdraw a portion of the deposit during the term without having to pay any form of penalty.

ADD ON Term Deposits:
These allow the customer to make additional deposits any time during the term.

Canada Deposit Insurance Corporation is a federal corporation that protects your deposits that you make in any of their member institutions which are plenty. To be eligible for deposit insurance protection, your insurance must be payable at Canada in Canadian currency.

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