What is a time deposit?

A time deposit is a simple way to earn interest on surplus cash. You place a set amount with a bank for a fixed period, and the bank pays a fixed rate. For many businesses, it's the first step beyond an operating account or a business money market account.

That simplicity comes with real trade-offs, particularly for companies holding balances well above the FDIC's $250,000 insurance limit. This guide explains how time deposits work in the US, how interest is calculated, and what finance teams should weigh before committing cash for a fixed term.

Time deposits explained

A time deposit is cash placed with a bank or credit union for a fixed period at a fixed rate. Under the Federal Reserve's Regulation D, a time deposit must mature in at least seven days, and most business CDs run from one month to five years. You usually can't withdraw the money before the maturity date without paying a penalty, and some business deposits can't be broken early at all.

At maturity, you receive your original deposit plus the interest earned. Many banks will renew the deposit for another term at whatever rate they're offering at the time, either automatically or on your instruction.

Time deposits around the world

The same product goes by several names. Regulation D calls it a time deposit, banks market it to companies as a business CD or commercial time deposit, and in the UK, Australia, and New Zealand it's usually called a term deposit or fixed-term deposit.

The basics don't change: a fixed amount, for a fixed term, at a fixed rate. One distinction does matter for treasurers. A standard CD opened directly with your bank is a contract between you and that bank, and you can't transfer it to anyone else. Negotiable CDs, issued in large denominations, and brokered CDs bought through a broker-dealer can be sold in the secondary market before maturity. However, the price you receive depends on how rates have moved since you bought it.

How does a business time deposit work?

To open a business CD, you agree on the amount, term, and rate with the bank, then transfer the funds. Banks often set a minimum deposit, and the most competitive rates tend to go to larger amounts placed through a bank's treasury or capital markets desk rather than its branch network. Once the deposit is in place, the rate is fixed for the full term, regardless of what the Federal Reserve does next.

How interest is paid

For shorter terms, interest is usually paid at maturity together with the principal. Longer-term CDs may pay interest monthly, quarterly, or annually, which suits companies that want a regular income stream. Depending on the bank, interest is either paid out to your operating account or added to the CD balance, where it compounds for the rest of the term.

What happens at maturity

Most banks contact you shortly before the term ends to ask for instructions. You can withdraw the full amount, take the interest and reinvest the principal, or roll over the whole balance. If you don't respond, many banks renew the deposit automatically at their standard posted rate, which can sit well below the rate you negotiated originally. Some offer a short grace period after renewal to withdraw without penalty, so check the account terms before you rely on it.

Keeping a maturity calendar and comparing rollover offers with prevailing market rates protects your return. A deposit left to renew automatically can earn far less than what's available elsewhere.

How is time deposit interest calculated?

Most business CDs pay simple interest on the principal for the full term. The formula is principal × rate × days ÷ day-count basis. US banks don't all use the same basis. Many CDs use an actual/365 convention, while most US money market instruments, including SOFR-linked products, repo, and commercial paper, use actual/360. On a large deposit, the difference shows up in dollars.

Take a company placing $2m in a six-month (182-day) business CD at 4.00%. On an actual/365 basis, interest at maturity is $2,000,000 × 4.00% × 182 ÷ 365, or about $39,890. On an actual/360 basis, the same deposit earns about $40,444, roughly $550 more.

The rate in this example is for illustration only. Actual rates depend on the bank, the term, and the deposit size. Banks also quote rates as an annual percentage yield (APY), which reflects compounding, so when you compare offers, make sure they're stated on the same measure and the same day-count basis.

What determines time deposit rates?

Business CD rates follow short-term market rates, chiefly the federal funds target range set by the Federal Open Market Committee, SOFR, and Treasury bill yields of a similar maturity, along with the market's expectations for where those rates are heading. The rate a bank offers is usually below what it would pay for wholesale funding, because it needs a margin. How far below depends on how much funding the bank wants for that term.

Regulation shapes pricing too. Under the US liquidity coverage ratio rules that apply to larger banks, a bank must hold high-quality liquid assets against deposits that could leave within 30 days. A corporate deposit committed for longer than 30 days doesn't create that outflow, so banks often pay more for terms beyond one month.

Comparing business CD rates across banks

Rates change often, so no single bank stays at the top of the table for long. Rate comparison tables work well for retail savers whose balances sit within FDIC limits. For a business placing millions of dollars, the bank's credit strength matters as much as the rate. A slightly higher rate from a weaker bank may not be worth it once you account for credit risk.

Are time deposits safe?

The Federal Deposit Insurance Corporation insures deposits at FDIC-insured banks up to $250,000 per depositor, per insured bank, for each account ownership category. Corporations, partnerships, and unincorporated associations have their own ownership category, and all of a company's deposits in that category at the same bank, CDs included, count toward a single $250,000 limit. The National Credit Union Administration covers deposits at federally insured credit unions to the same level.

That limit covers most individual savers. For a company with $5m at one bank, it covers 5% of the balance. Deposits held under different brand names or branches of the same chartered bank also share one limit, so spreading cash across a bank's trading names adds no extra coverage.

Counterparty risk for corporate deposits

Any amount above the FDIC limit is an uninsured claim on the bank. If the bank fails, the FDIC steps in as receiver. Under federal depositor preference rules, deposit claims, including uninsured deposits, rank ahead of the bank's general unsecured creditors. That improves the uninsured depositor's position, but it doesn't guarantee full recovery. What you get back depends on the value of the failed bank's assets, and payments can arrive in stages over months or years.

The regional bank failures of March 2023 showed how quickly this risk can become real. Uninsured depositors at two of the failed banks were made whole only because regulators invoked the systemic risk exception, a discretionary decision rather than a standing guarantee.

Managing this risk means assessing each bank's credit quality and limiting how much you place with any single institution. Many treasurers diversify cash across several banks, but each new relationship adds onboarding, KYC, and ongoing admin. Reciprocal deposit networks can spread a large balance across many banks to extend FDIC coverage, though they come with their own rate and operational trade-offs.

Advantages and limitations of time deposits

Advantages

A time deposit gives you certainty. The rate is set up front, so you know your return to the dollar for cash flow forecasting. Business CDs are easy to set up through an existing banking relationship, usually carry no account fees, and often pay more than an operating or money market deposit account.

Limitations

The main drawback is liquidity. Once cash is in a CD, you generally can't reach it until maturity, and many business deposits can't be broken early at all. Where early withdrawal is allowed, Regulation D sets a minimum penalty of seven days' simple interest on amounts withdrawn within six days of deposit. Still, banks set their own penalties above that floor, often measured in months of interest. A penalty of that size can wipe out the benefit of the higher rate.

A fixed rate cuts both ways. If market rates rise, you're locked in at the agreed rate until maturity. Keeping most of your cash with a handful of banks also ties your portfolio to their credit strength.

Is it worth putting money in a time deposit?

Whether a time deposit makes sense depends on how certain you are about when you'll need the cash. Start by segmenting your cash by purpose. Keep operating cash available, while reserve or strategic cash can often be committed for longer.

Time deposits work well for cash you know you won't need until a specific date. Laddering deposits so that one matures each month or quarter gives you regular access without giving up much return. Laddering still carries liquidity risk, so stress-test your forecast before you commit.

time deposits and other options for business cash

time deposits are one option among several for surplus cash. Each alternative balances liquidity, credit risk, and return differently, and the right mix depends on your cash forecast and investment policy.

Money market deposit accounts

A money market deposit account pays a variable rate and lets you withdraw on demand. It's more flexible than a CD, but the bank can change the rate at any time, and you still carry the bank's credit risk, with the same FDIC limit applying across your combined balances at that bank.

Money market funds

Money market funds offer same-day or next-day access and spread your cash across many issuers. They're regulated by the SEC under Rule 2a-7, aren't FDIC-insured, and pool investors' cash in a single portfolio whose holdings mature later than the daily liquidity the fund offers. Since the SEC's 2023 reforms, institutional prime and tax-exempt funds generally must charge a liquidity fee when daily net redemptions exceed 5% of net assets. As a result, prime MMFs are less widely used; however, government MMFs remain reasonably prominent. Our guide to money market funds explains more.

Treasury bills

US Treasury bills shift your credit exposure from a bank to the US government, for terms of up to one year. You buy them at a discount and receive the full face value at maturity. Holding them directly usually means setting up a broker-dealer or custody relationship. Our full guide to Treasury bills has more detail.

Secured lending through repo

In a reverse repo, you lend cash and receive high-quality collateral, such as US Treasuries, held by an independent tri-party agent. If the borrower defaults, you can claim the collateral, which is typically worth more than the cash you lent. Our guide to repurchase and reverse repurchase agreements explains how this works.

Choosing the right home for surplus cash

time deposits remain a simple, predictable way to earn interest on cash you won't need for a while. For businesses with balances well above FDIC limits, credit risk and liquidity deserve as much attention as the headline rate. Knowing exactly how much cash is surplus, and for how long, makes the decision easier.

To compare business CDs with other options for your cash, contact our team. We can show you how a fixed-rate, single-issuer structure works alongside your existing deposits.

For anyone who can’t tell the difference between their SEC and their ASC, we’ve introduced our Treasury & Cash Investment Glossary.

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*TreasurySpring’s blogs and commentaries are provided for general information purposes only, and do not constitute legal, investment or other advice.