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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.
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- The money cannot be withdrawn before maturity without a penalty.
Term deposits tend to earn higher interest rates than other types of deposit accounts. While you can earn a high annual percentage yield (APY) with an online savings account — up to 3 or 3.5 percent at the time of this article’s writing — the rates on a 1-year CD currently reach up to 4.5 percent.
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 any 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’ll still likely have a higher yield than other bank account types.
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.
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||Call deposits|
|Earn high interest rates that vary by term||Earn high interest rates that may vary by balance amount|
|Typical minimum balance requirements range from $0 to $2,000||Minimum balance requirement may be $10,000 or more|
|Come with a set maturity date for when the money becomes available||Money can be withdrawn at any time|
|Very little liquidity — there’s a penalty for early withdrawals||Very liquid, similar to a checking account|
It’s worth shopping around and comparing options to find the best rates on a CD or call deposit.