Also known as a term deposit, a fixed term deposit is a deposit that is held by a financial institution for a specified or fixed period of time. Deposits of this type may involve a number of different types of accounts, but are often associated with term savings accounts and certificates of deposit. In exchange for agreeing to not withdraw the deposit for the time specified by the institution, the depositor is generally awarded a rate of interest that is greater than with deposits that do not involved a fixed maturity or term.
The exact provisions that apply to a fixed term deposit will vary, based on governmental banking laws and regulations that apply in nations where the financial institution is established. Typically, the rate of interest applied to the deposit is slightly more than the current national average, allowing the depositor or lender to earn a competitive return. While fixed term deposit interest will vary, one benefit to the customer is the lack of a great deal of risk associated with the investment, since this approach is more likely to be used with savings plans and accounts that are insured by some sort of government fiduciary organization.
With a fixed term deposit, the usual process involves depositing the funds into a specific account and agreeing to not withdraw those funds for a specified amount of time. In many cases, the commitment is short-term, with the interest earned and the maturity date reached within six months to a year. There are fixed term deposit accounts that may require a longer commitment, sometimes several years. Should the depositor choose to withdraw funds before the maturity date is reached, he or she usually loses any interest accrued up to that point and may also have to pay some sort of early-withdrawal penalty.
Some financial institutions do allow early withdrawal of a fixed term deposit under what are known as hardship conditions. For example, if the depositor lost his or her job and needed the money to pay current debt obligations, the funds may be released without any type of penalty. A prolonged illness or stay in a hospital may also be seen as legitimate grounds for early withdrawal, especially if the money is needed to meet basic living expenses during the recuperation period. Since the exact provisions in any given fixed term deposit agreement may vary with other plans available, customers should compare plans and their provisions before choosing to make this type of commitment.