Premium Time Deposits – Insurance for Better Earning


Premium time deposits are designed to enable you to earn more money on higher interest rates for a specific period of time. They are also known as ‘Certificates of Deposits’ and are investments that run a low risk of loss. Certificate of Deposit of CD is an account that you may open with a bank or some low budget institution offering a higher percentage of interest compared to your standard savings account. For a CD to work you must deposit a fixed amount of money of a fixed time limit and you will be receiving interests from the bank at expected interval.

This time limit may be six months or one year or even 5 years depending on how long you want to keep it for. Once this time limit is over you can withdraw the money along with the interest that you receive but if you want to withdraw the money before the date of maturity, you may have to pay a penalty for premature withdrawal or forfeit a fraction of the money you may have earned on interest. Again if the bank fails to give you back your money at the end of the term, the FDIC insures the principal amount plus interest up to the limit of insurance deposit.

The Types of time deposits vary with the banks and what they are willing to offer its clients. In the initial stages of its launch, time deposits comfortably offered a fixed rate of interest till the date of maturity. These CDs were more popularly known as “traditional CDs” and may still be the most common ones offered by the banks and other thrift institutions. However, banks have diversified in the types offered today and you may find many banks that offer CDs with minimum or no penalty for premature withdrawal.

These offers do have their own conditions like maybe introducing a special feature for release of funds in the event of death of the depositor or even provisions that give banks the right to decide on the maturity or acceleration of the investment. This has led to banks offering variable interest rates too depending on the market index or a pre-planned program. Besides gaining its own benefits like extra money from the interest rates, you may also enjoy certain additional benefits at the banks you open the account with. For example you may be given a Visa Electron debit card or a star debit card free of any charges.

Like your savings account, premium time deposits earn compound interest which means that even if the rate of interest remains constant, the amount of interest increases every time. Since different banks have different options for time deposits, you may do your research before you decide on opting to invest with any bank in particular. One important thing to consider may be the Annual Percentage Yield (APY), which is the rate of return earned by the investor that sums the total compounded interest. You must keep in mind that the APY is different from the Annual Percentage Rate (APR).

Here are top 3 pointers on time deposits:

  1. The principal amount in a time deposit should not be subject to any contractual contingencies except for its premature withdrawal. If it is then it may be only an investment and not a deposit that is insured by the FDIC.
  2. Keep in mind the date of maturity of your time deposit and also find out if there are any clauses that may implement automated renewal once the CD is mature. Review the agreement before you proceed with anything.

You must acquire your time deposit from a bank that is insured by FDIC. You may use the FDIC website to locate insured banks.

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