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Time Deposits vs. Demand Deposits

Enrich Financial Life Glossary

Have you heard the terms time deposit and demand deposit? Not sure what they mean? Let KayeCee explain...

Time Deposits vs. Demand Deposits

Time Deposit 

An interest-bearing bank deposit that is expected to be held within that account until a certain date. 

Example: Certificate of Deposit - The bank or credit union creates an account to hold the money that you deposit. The money stays in that account for a specified time. (Generally 30 days to 5 years) If the money is withdrawn early, a penalty is paid. 

Demand Deposit

A deposit that can be demanded by the account holder at any time.

Example: Checking or Savings Account - Money can be deposited or withdrawn at will by the account holder.

Which type of account is better?

The answer to this question depends on how long it will be until you need the money.

Any money that will be needed within the next 3 months is better suited to a demand deposit account. By keeping your money in something like a checking or savings account for short term holds, you don't face penalties for withdrawal and there is less hassle for moving money in and out of the account. 

If you have money that you don't want to be exposed to volatile investments, like the stock market, and you won't need it for several months or years, time deposit accounts generally give much better interest rates than demand accounts.

KayeCee... Financial Coach


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