Time Deposit – What is It and How Does it Work?
Time deposit, or commonly also referred to as fixed deposit in Singapore, is a type of bank savings or investment account that promises the investor a fixed rate of interest and the investor agrees to lock in his / her funds for a fixed period of time.
In a time deposit investment, interest is generally paid at the very end of the investment period. However there are products with options of quarterly, bi-annual or annual interest payment This is different from regular savings accounts, where interest is calculated daily and is generally paid to you monthly, i.e., at the end of each month. As the investment term and interest rate are fixed, you can calculate the amount of interest you will earn at the end of any time deposit investment. This gives certain stability to the investment and makes this product a safe investment option.
How Do Time Deposits Work?
With a time deposit, one of the most unusual characteristics is that funds cannot be withdrawn for a fixed period of time.
Time deposit term can vary from 1 month to 36 months.
When you invest in a time deposit investment, you are presented with different term options e.g. 1 month, 3 months, 6 months, 9 months, 13 months etc.
Each term comes with a predetermined interest rate. For instance, banks generally quote their time deposit interest rates in a table similar to this one:
Source: UOB Bank
What this means is should you choose to invest in a time deposit with a 6 month term, you will be entitled to an interest rate of .15% p.a. at the end of 6 months.
Do you want to know which bank offers the highest fixed deposit interest rate? Check out our fixed deposit comparison table here.