Term deposits, fixed deposits and CDs

A term deposit — also called a fixed deposit (FD) or certificate of deposit (CD) — is cash placed with a bank for a fixed period at a fixed interest rate.

How it works

You agree a term (say 6 months to 5 years). The bank pays a set rate, usually higher than instant-access savings. Withdraw early and you typically forfeit some interest or pay a penalty.

What it's for

• Money you're sure you won't need until the term ends.
• Locking in a known return with very low risk.
• Laddering: splitting cash across several maturities so some frees up regularly.

Pros and cons

Pros: predictable, guaranteed return; capital protected (within deposit-protection limits); no market risk. Cons: money is illiquid until maturity; the rate may still trail inflation; you miss out if rates rise during the term.

Interest and compounding

Some pay interest at maturity; others periodically. Reinvesting interest lets it compound.

Key takeaway

Term deposits suit safe, goal-dated cash where certainty matters more than growth. For long horizons, their low returns usually lag what a diversified investment portfolio can achieve.