What to Know Before Making a Time Deposit

In this quick guide you will learn what a term deposit entails, what to expect, and what you should know and understand before going to a bank and consulting directly with them.

The first thing to know is that a term deposit is a money deposit at a bank that cannot be withdrawn for a certain period of time or fixed term. Once the term is over, the money can be withdrawn, or held longer for another term. While the money is held in the account, it “matures,” and therefore upon withdrawal yields a higher amount. In a general sense, the longer the term, the higher the yield. The agreement made between the bank and the account holder states that the money must be kept on deposit for a predetermined period of time (which can be broken for a penalty) or the bank may require a period of notification before the withdrawal of the deposit. There are small and large term deposits. A small deposit is considered to be under $100,000, while large deposits are $100,000 or greater.

Understand the Term Length and Conditions

Before making a term deposit, it is important to note the term you agreeing for with the bank, the account type, and the annual percentage yield (APY). An APY is an interest rate that you agree for when making a term deposit. The higher the APY, the higher the yield will be when you withdraw your deposit. According to the International Deposit Interest Rates Exchange, the top three highest APYs for term deposits in Canada are 1.35% from ING, 1.15% from Bank of Montreal (BMO), and 1.10% from the Royal Bank of Canada (RBC). All three types are one year deposits.

Use Your Resources

A great source to use before making a term deposit is RateSupermarket.ca, a free and easy leading website that compares any rates and contacts you by e-mail, phone, or website. They offer to research any rates you need from term deposits and savings accounts, to mortgage rates and all types of insurance.

Non-Negotiable Terms

Before going and talking with a banker or agent, it is important to understand that terms are sometimes non-negotiable, and that making a term deposit is a bit like an investment. Although some banks allow for individuals to withdraw their deposits for a penalty, it is not recommended as the penalties can be quite steep and the initial investment will not necessarily be paid off. If you want flexibility when it comes to withdrawing your deposit (such as cash while your deposit is still maturing), consider opening a “certificate of deposit” (or, “CD”). If you want to be able to withdraw at any point, consider opening a “sight deposit” (a simple checking or savings account), which can be withdrawn at any time without any notice or significant financial penalty. By using RateSupermarket.ca (http://www.ratesupermarket.ca/), you can ensure you find the most suitable rate for you and make the deposit that best suits your individual needs.