What is term deposit?

Asked 12-Apr-2019
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A term deposit is a  term deposit held at a financial institution. They are basically short-term deposits with maturities which range anywhere from a month to a few years.
Whenever an investor buys a term deposit the client knows that the money can only be withdrawn after the term has ended or by giving a predetermined number of days notice.
These deposits are locked-in for a specific time period during which the financial institution invests in financial products which can offer higher returns. For instance, a lender may provide a 2% rate for term deposits. These funds are then deposited and structured as finance to borrowers. This lending is charged at 7% in interest to the borrower. This means that the lender makes a net profit of % in return via term deposits.
These are an extremely secure investment and are therefore appealing to investors who do not wish to take a lot of risks. These deposits are sold by banks are insured by the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) for credit unions.
Similar to term deposits are fixed deposits. These are also highly secure and low-risk investments as they are free from market fluctuations. They are a guarantee of assured returns as they offer higher interest rate starting from 8.75% onward up to 9.10% investors for lock-in periods ranging between 12 to 60 months