Term deposit vs. call deposit: What’s the difference?

Most consumers are familiar with checking and savings accounts, but those aren’t the only types of accounts offered by financial institutions. Two other types of deposit accounts include term deposits and call deposits.

While term deposits have set maturity dates and earn interest for the duration of a specified term, call deposits have more liquidity but may require higher minimum balances. Here’s everything you need to know about each of these types of accounts.

Term deposits

A term deposit (also called a time deposit) is a type of deposit account offered by many banks and credit unions. Term deposits have three key features:

• They earn a guaranteed interest rate.
• Money in the account earns interest until a set maturity date.
• The money cannot be withdrawn before maturity without a penalty.

The most common example of a term deposit is a certificate of deposit (CD), though sometimes the two phrases are used interchangeably. At credit unions, they’re typically called share certificates.

Term deposits sometimes earn higher interest rates than other types of deposit accounts. Currently, top savings account rates are actually on par with top one-year CD rates. You’ll find yields of up to 5.35 percent APY on both high-yield savings accounts and one-year CDs, as of this article’s writing.

The exact term length — how long you must keep money in the account before it matures — will vary. Typically, term options range from a few months to five years. On most term deposits, there’s a penalty for withdrawing money from the account before its maturity, which might mean forfeiting some or all of the interest earned.

One notable exception to the early withdrawal penalty is a no-penalty CD. As its title suggests, a no-penalty CD allows the depositor to withdraw money from the account before the term ends without paying a fee. No-penalty CDs might not earn top-tier rates among CDs, but they still may have a higher yield than other bank account types.

Call deposits

Call deposits are another type of deposit account that, like term deposits, offer higher rates than a typical checking or savings account. However, they do not require you to keep your funds in the account for a certain length of time and offer greater liquidity than a term deposit.

A call deposit account may have a higher-than-average minimum deposit requirement, but you can earn a high interest rate in exchange for meeting this minimum. Alternatively, there might be tiered interest rates depending on what the account balance is, so lower balances earn lower rates and higher balances earn higher rates.

There’s also no penalty for withdrawing money from the account whenever you’d like — in this way, call deposit accounts are somewhat similar to checking accounts. They may even be called Checking Plus accounts, or something similar, at banks and credit unions.

Key differences

While both term deposits and call deposits are alternatives to checking and savings accounts that come with higher interest rates, they don’t have much else in common.

Note that because both types of accounts are offered by FDIC-insured banks or NCUA-insured credit unions, they are backed by the full faith and credit of the U.S. government.

It’s worth shopping around and comparing options to find the best rates on a CD or call deposit.

Bottom line

Both term deposit and call deposit accounts can offer advantages over standard savings accounts. Whether either of them is right for you can depend on the yield you’re looking to earn, the amount you wish to deposit and when you’ll want access to the funds.

—Bankrate senior writer Karen Bennett contributed to an update of this story.