Fixed-term deposit

A deposit at a rate agreed for a stated period, in exchange for giving up access to the money for that period.

Example

Agreeing 4.00% for two years holds that rate for two years whatever happens to policy rates, and leaves the balance unavailable in between.

Important

It converts a rate the institution can change into a contracted one, and your liquidity from complete into scheduled. Choose it on when you need the money, not on which rate looks higher today.

Related terms

  • Bank deposit — Money handed to a bank in exchange for a claim on it. The bank owns the money and lends most of it out; what you hold is a debt that institution owes you, repayable on the terms of the account.
  • Policy rate — The benchmark interest rate set by a central bank, which the rates institutions offer savers and charge borrowers are set with reference to.
  • Early withdrawal penalty — What it costs to take money out of a term or notice account before the agreed date - commonly a stated number of days of interest forfeited, a fixed charge, or outright refusal.
  • Liquidity — How quickly and cheaply an asset can be converted to cash without moving its own price.

Lessons that explain it

  • Interest, and a rate somebody else can change — The whole return is a rate applied to a balance. What makes it unlike every other asset class is that the rate is set by the institution, can be changed at will, and you have agreed to that in advance. (10 min)
  • Appraising one account: rate, access, cover and the expiry date — Six checks on one specific account. The headline rate is the one everybody runs and the only one that can be withdrawn without warning - so it belongs fourth, not first. (12 min)

All 578 terms in the Investing glossary