Financial Benefits From a Time Deposit A time or term deposit is a cash deposit at a bank, which cannot be withdrawn for a set period of time without paying a hefty penalty. When the respective term – for example, 6 months – expires, you can withdraw your money or sign an agreement to extend the term for another six months. The interest on such deposits is typically not negligible, which is definitely a major financial benefit. Generally speaking, the longer the term is, the higher the interest. For example, TD Canada Trust offers term deposits in Canadian dollars, US dollars and several other world currencies. A three-year term deposit yields a return in interest of up to 10 percent of the deposit value. This means that if you put away 5000 dollars for three years, you will get $5500 back in three years. A five-year deposit will get you up to 20 percent back, or $6000 at the end of the term. But you have to be absolutely sure you will not need this money in the next 3 or 5 years. “Breaking” your term deposit can have disastrous financial consequences. Term deposits offer the benefit of a guaranteed interest rate. Some banks also let you withdraw all or part of your money before the term has expired at a reduced rate. Second, such deposits are ideal for both short-term savings goals and long-term savings. Another benefit of term deposits is that they are very safe compared to other investment instruments (e.g. stocks). You do not need lots of money to get started. Given that terms vary from one month to five years, it is up to depositors to choose a term that suits their savings goals best. Moreover, this will make it more difficult for you to dip into your savings given that you will be charged a fee for breaking the term. Then, if you roll the deposit over a longer period, compound interest is an additional benefit. This means that your deposit will earn interest on your interest. Not only are term deposits safe, but you receive an agreed upon rate of interest. The interest you are offered, however, depends on economic and other conditions. Banks may offer high interest rates when liquidity is low in order to attract investors. Term deposits are a preferred investment instrument of risk-adverse persons and a way to meet future expenses. You can use the savings to fulfill a wish list as well – a car, home, vacation, and so on. Term deposits are different from close-ended mutual funds in that, you are not allowed to withdraw your savings for a certain period with the latter. Term deposits allow this, so if you face an emergency, you can use your savings, albeit you have to pay a penalty fee for making a premature withdrawal. What about disadvantages? Given that term deposits are safe to invest in, the interest rate you get will be lower compared to other types of investment. How do you apply for a term deposit? Different Canadian banks have different rules but in general, you can apply both in person and online. Online applications are easy to complete and take from 5 to 10 minutes. You can apply and use this application to buy term deposits held outside a registered plan or within a tax-free savings account at the same bank. If you want to buy a deposit online, you must have an account or credit line at the bank, which is going to be debited for the value of your deposit. You must be a resident of Canada. The account has to be in your personal name. You need to provide your bank access card number, bank branch number and account numbers (you will see them on your account statements), and your Social Insurance Number (SIN). If you are approved, you will get all the required documentation to open a term deposit in the mail. All you must do is sign these documents where indicated and mail them back to the bank.