Time deposit

Time deposits ( time deposits or term deposits ) are short to medium- term deposits with banks, for which the term or notice period less than one month.

Species

Depending on whether the customer has agreed with the Bank for a fixed term or a specific period of notice for its investment, a distinction is made between fixed deposits and deposits at notice.

• With the investment of fixed deposits for a fixed term is agreed between the customer and the bank in which from the outset a certain time for the maturity of the investment will be arranged. At the end of the term they can be done either as a demand deposit or prolonged ( extended ) are. In prolongation usually the current interest rate applies. During this term of an interest rate is fixed, which remains unchanged until maturity, entering market fluctuations are ignored.

If the fixed term deposit must be terminated before the expiry of the agreed term, so this is usually associated with the loss of interest. The term begins this very day the value date on which the respective assets received on account.

• Upon termination of funds is a certain notice period is agreed. Will the bank customer dispose of his investment, he must first give notice and wait for the period of the agreed period of notice until the investment matures. Until the termination of the deposit is unlimited and therefore usually variable rates, according to the notice they get the character of a time deposit, for which a fixed interest rate can be agreed.

The interest earned in the two species on the due date of investment. Most credit institutions shall establish minimum amounts of 5,000 euros for investments in fixed or termination payments.

Purpose

Cash serves exclusively of investment because they are not available during the agreed term or period of notice for the bank customers. Granted the bank customer on time deposits before the time expires, no new transfer, then extended the credit institution, the term deposit is usually about the same, originally agreed term. The already tempered interest are then on Reinvested always added ( compounding). Due to this automatic renewal date funds often get the character of the medium or long -term investments. Time deposits are due to the interest rate disadvantage, not for long-term investments, but should cover the period, must be disposed of until about the investment as for consumption or new date fixed payment obligations.

Situation in Germany

Legal bases

According to § 1 para 1 No. 1 of the Banking Act, the acceptance of funds as deposits or other repayable funds from the public necessarily regarded as banking services, which may be used only with permission of the Financial Supervisory Authority BaFin. Therefore, banks are the only ones empowered, time deposits receive.

A legal definition of term deposits was found in § 3 of the statement of the Deutsche Bundesbank on minimum reserves (AMR ), after which time deposits were considered term liabilities with a notice period or term of one month to four years. This statement has been canceled because of the third stage of Monetary Union by the Bundesbank. The ECB now refers Deposits with agreed maturity or period of notice of up to 2 years in the reserve requirement a.

Like all bank deposits are also subject to term deposits with German banks at least the statutory deposit insurance and often beyond the voluntary scheme of individual banking organizations.

Importance

According to the Bundesbank statistics, time deposits reached in February 2010, approximately 62 % of total deposits of non-banks in the country, while the remainder came from demand deposits. The largest share is accounted for just under 71 % on time deposits with a maturity of more than 2 years. Among banks and institutional investors also exists an active futures trading money, on which market participants can compensate for their short to medium term liquidity surplus or shortfall.