Most consumers are familiar with checking and savings accounts, but those aren’t the only types of accounts offered by financial institutions. Two other types of deposit accounts include term deposits and call deposits.
While term deposits have set maturity dates and earn interest for the duration of a specified term, call deposits have more liquidity but may require higher minimum balances. Here’s everything you need to know about each of these types of accounts.
Term deposits
A term deposit (also called a time deposit) is a type of deposit account offered by many banks and credit unions. Term deposits have three key features:
- They earn a guaranteed interest rate.
- Money in the account earns interest until a set maturity date.
- The money cannot be withdrawn before maturity without a penalty.
The most common example of a term deposit is a certificate of deposit (CD), though sometimes the two phrases are used interchangeably. At credit unions, they’re typically called share certificates.
Term deposits sometimes earn higher interest rates than other types of deposit accounts. Currently, top savings account rates are actually on par with top one-year CD rates. You’ll find yields of up to 5.35 percent APY on both high-yield savings accounts and one-year CDs, as of this article’s writing.
The exact term length — how long you must keep money in the account before it matures — will vary. Typically, term options range from a few months to five years. On most term deposits, there’s a penalty for withdrawing money from the account before its maturity, which might mean forfeiting some or all of the interest earned.
One notable exception to the early withdrawal penalty is a no-penalty CD. As its title suggests, a no-penalty CD allows the depositor to withdraw money from the account before the term ends without paying a fee. No-penalty CDs might not earn top-tier rates among CDs, but they still may have a higher yield than other bank account types.
Call deposits
Call deposits are another type of deposit account that, like term deposits, offer higher rates than a typical checking or savings account. However, they do not require you to keep your funds in the account for a certain length of time and offer greater liquidity than a term deposit.
A call deposit account may have a higher-than-average minimum deposit requirement, but you can earn a high interest rate in exchange for meeting this minimum. Alternatively, there might be tiered interest rates depending on what the account balance is, so lower balances earn lower rates and higher balances earn higher rates.
There’s also no penalty for withdrawing money from the account whenever you’d like — in this way, call deposit accounts are somewhat similar to checking accounts. They may even be called Checking Plus accounts, or something similar, at banks and credit unions.
Key differences
While both term deposits and call deposits are alternatives to checking and savings accounts that come with higher interest rates, they don’t have much else in common.
Term deposits/time deposits
- Earn high interest rates that vary by term
- Typical minimum balance requirements range from $0 to $2,500
- Come with a set maturity date for when the money becomes available
- Very little liquidity — there’s a penalty for early withdrawals
Call deposits
- Earn high interest rates that may vary by balance amount
- Minimum balance requirement may be $10,000 or more
- Money can be withdrawn at any time
- Very liquid, similar to a checking account
Note that because both types of accounts are offered by FDIC-insured banks or NCUA-insured credit unions, they are backed by the full faith and credit of the U.S. government.
It’s worth shopping around and comparing options to find the best rates on a CD or call deposit.
Bottom line
Both term deposit and call deposit accounts can offer advantages over standard savings accounts. Whether either of them is right for you can depend on the yield you’re looking to earn, the amount you wish to deposit and when you’ll want access to the funds.
—Bankrate senior writer Karen Bennett contributed to an update of this story.
FAQs
While term deposits have set maturity dates and earn interest for the duration of a specified term, call deposits have more liquidity but may require higher minimum balances.
What is the difference between a term deposit and a call deposit? ›
As the name suggests, an at-call account allows you to access your money straight away. In other words, at-call. At-call accounts differ to a Term Deposit in that they do not have a maturity date and the rate they pay can change at any time. This is referred to as a variable interest rate as opposed to a fixed rate.
What is the difference between term deposit and term deposit? ›
A term deposit is often used when the deposit is extended for a certain period, say 3 months, 6 months etc. Fixed deposits, on the other hand, are used when the deposit is for a period of 6 months or greater than that. The deposit amount offers a higher rate of return as compared to the banks' savings accounts.
What are the disadvantages of call deposit? ›
Drawbacks: Call deposit accounts do have some drawbacks, including the restrictions on withdrawals and the higher minimum deposit requirements. Additionally, the interest rate on a call deposit account can fluctuate, which can impact the returns on your savings.
What is the call deposit rule? ›
A call deposit account is a bank account for investment funds that offers the advantages of both a savings and a checking account. Like a checking account, a call deposit account has no fixed deposit period, provides instant access to funds, and allows unlimited withdrawals and deposits.
What is the purpose of call deposit? ›
Call deposits are basically accounts that require you to keep a minimum balance in exchange for a higher interest rate. Unlike time deposits, you have ready access to most of your cash, yet are still able to earn a higher return.
What is a term deposit? ›
What is a term deposit? Term deposits are a type of savings account that lets you invest funds for a specific term at a fixed interest rate. Interest is calculated daily and paid at maturity (for terms up to 12 months), or monthly, quarterly, half-yearly or annually (for terms over 12 months).
What is better than a term deposit? ›
While term deposits can be used for this purpose, a high interest savings account allows you instant access to your cash at any time and may offer a better interest rate than a shorter-length term deposit. These are goals you are planning to accomplish within the next one to five years.
What is the difference between a call account and a savings account? ›
Call deposits are another type of deposit account that, like term deposits, offer higher rates than a typical checking or savings account. However, they do not require you to keep your funds in the account for a certain length of time and offer greater liquidity than a term deposit.
Are term deposits high risk? ›
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.
Call deposits are short-term investments that can facilitate flexible cash management. Unlike fixed-term deposits, call deposits have neither a fixed maturity nor a fixed interest rate. The rates can vary depending on the market environment.
What is an example of a term deposit? ›
Term Deposit Example
For example, if you choose to invest ₹25,000 for three years at a 7.1% annual interest rate, a cumulative TD would have a maturity value of ₹30,712. Interest is earned at a rate of 7.1% per year. Non-cumulative TDs, on the other hand, pay out interest on a regular basis and lose compounding power.
What is an example of a call deposit? ›
Call deposits can be useful as a short-term investment, for example if you are interested in “parking“ money but already know that you will soon be requiring the funds for an investment.
What is a 7 day call deposit? ›
The 7-day call account is an alternative to investing funds into long term fixed deposit accounts. This account carries a higher rate of interest than ordinary savings accounts but gives the customer the flexibility of withdrawals provided that a 7 day notice is given.
What is the difference between time deposit and term deposit? ›
Term deposits, also known as time deposits, are investment deposits made for a predetermined period, ranging from a few months to several years. The depositor receives a predetermined rate of interest on the term deposit over the specified period. Funds deposited for longer periods command a higher interest rate.
What is a callable deposit? ›
What is a callable FD? A fixed deposit that allows the depositor to withdraw funds before the deposit's maturity date. Simply said, callable deposits are all fixed deposits that allow for premature withdrawal. For withdrawing funds before the maturity date, the Bank imposes a penalty.
Is overnight deposit the same as call deposit? ›
Overnight deposit is also known in the market as call deposit. City Bank is an active participant of the inter-bank call market. City Bank injects market liquidity and plays an important role in the inter - bank call money market. Due to the nature of product it has minimum credit risk as the tenure is overnight.
What is the difference between a term deposit and a demand deposit? ›
A demand deposit can be accessed at any time and withdraw any amount of funds without prior notice given to the bank. A term deposit can't be accessed at all until the lock period is served. No withdrawals can be made in term deposits until the date of maturity has arrived.
