What Is a Fixed Deposit?

A Fixed deposit is a fixed-term investment that includes the deposit of money into an account at a financial institution. Term deposit investments usually carry short-term maturities ranging from one month to a few years and will have varying levels of required minimum deposits.

The investor must understand when buying a term deposit that they can withdraw their funds only after the term ends. In some cases, the account holder may allow the investor early termination—or withdrawal—if they give several days notification. Also, there will be a penalty assessed for early termination.

Key Takeaways

• A term deposit is a type of deposit account held at a financial institution where money is locked up for some set period of time.
• Term deposits are usually short-term deposits with maturities ranging from one month to a few years.
• Typically, term deposits offer higher interest rates than traditional liquid savings accounts, whereby customers can withdraw their money at any time.

Advantage of Fixed Deposit

• Term deposits offer a fixed rate of interest over the life of the investment.
• Term deposits are risk-free, safe investments since they're either backed by the FDIC or the NCUA.
• Various maturities allow investors to stagger end-dates to create an investment ladder.
• Term deposits have a low minimum deposit amount.
• Term deposits pay higher rates for larger initial deposit amounts.