Fixed Deposit & Certificates

Fixed deposit accounts & certificates of deposit are money market instruments used for a fairly short period that pay interest at a set rate until their given maturity dates. Companies, private persons and financial establishments around the world use certificates of deposit as a way to store their liquid funds for preset periods of time for future use. Credit unions, savings and loan companies and banks, all of which are regulated by the country or currency zone in which they operate, are the usual providers of certificates of deposit to customers.

According to International Deposit Rates Exchange, the best rates for fixed deposit accounts & certificates of deposit can be found in Australia, which offers customers as much as 5.10 percent (for deposits held at Credit Union Australia for deposit balances of AUD$10,000 and over for a period of one year). This is followed by theUKwith 3.75 percent,Chinawith 3.5 percent,Canadawith 1.4 percent and theUnited Stateswith 1.05 percent.

TheUSAoffers both fixed and variable rate certificates of deposit. In that country, customers can purchase a certificate of deposit for as little as one hundred dollars. They are available for terms ranging from seven days to ten years, with 0.25 percent interest being paid on three-month certificates, and 1.6 percent being paid on the five-year ones. Fixed deposits are insured by the Federal Deposit Insurance Corporation for up to US$250,000.

Fixed deposits & certificates of deposit in theUnited States, as in other parts of the world, are a savings or investment option for customers who have funds available to set aside for a specified period. It is considered a low risk investment with a lower rate of return than other asset classes. Banks typically require a minimum investment for fixed deposit accounts. The highest fixed deposit interest rate in theUSAis 2 percent, offered by Bank of America.

Customers may not withdraw funds placed on fixed deposit accounts & certificates before the maturity date without attracting penalties such as loss of interest. They are comparatively safe investments, but only when offered by established financial institutions. ‘Fixed deposit’ is a term widely used in some countries such asIndia, but these financial instruments are also known as ‘term deposits’ inNew Zealand,CanadaandAustralia, ‘time deposits’ in theUSAand ‘bonds’ in theUK.

There are several types of fixed deposit. One of the most popular is the certificate of deposit, which is a type of commercial paper confirming the monetary value of the deposit, its maturity date and the interest applicable on the amount deposited. Another type is known as the ‘revolving bank term deposit,’ which is automatically renewed for another term of an equal length after its period expires.

The terms and conditions of fixed deposits & certificates of deposit vary significantly from bank to bank and from country to country. They differ from ordinary savings and checking accounts because the funds cannot be readily withdrawn without attracting a considerable penalty. Another way in which they differ from other types of deposits is that they have a fixed date of maturity. After this date the funds held in the account are either rolled over or returned to the customer.