Difference between Time and Demand Deposits

Demand and time deposits are the terms which are used in banking context and many people tend to get confused when they hear these terms. In order to get a clear idea about both terms, let’s look at the differences between time and demand deposits –

  1. Time Period – Time deposits are deposited in bank for a fixed period of time (Usually 1 year to 5 years) whereas there is no fix time period involved in case of demand deposit.
  2. Example – Fixed or term deposit is an example of time deposits whereas saving account and current account are examples of demand deposits.
  3. Penalty – If one withdraws his or her time deposit early before the maturity then he or she has to pay penalty which is not the case with demand deposits as one can withdraw funds as and when required by him or her in case of current account and limited number of times in case of saving account.
  4. Rate of Interest – The rate of interest offered by the banks on time deposit is higher around 7 to 9 percent whereas in case of saving and current account it is lower (which is around 4 to 6 percent).
  5. Facilities – In case of time deposit one does not need facilities like ATM, credit card, online banking as funds are tied for a specific period whereas in case of demand deposits one needs all facilities like ATM, credit card, online banking as these accounts are meant for withdrawal of funds as and when required by the account holder.

As one can see there are many differences between the two and before opening an account in the bank one should know beforehand both the terms because it will help him or her in deciding which type of account he or she wants to open and also in planning the investments because some investments are made for returns (higher the returns better it is) while some are made for liquidity (quick availability of funds as and when required).

1 comment… add one
  • k.sharanya

    it was very easy to study

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