What is the Difference between Term Deposit and Demand Deposit?

Whether you are a risk-averse investor or even a moderate risk investor, you may be interested in several market-independent options to improve the safety of your portfolio. In such cases, you may often find yourself confused between a term deposit and demand deposit. While a term deposit involves investing a sum of money for a fixed tenor, demand deposit is an investment option that offers more flexibility and ease of access but offers limited earnings.

It is important to be aware of the clear distinction between the two, so that you can select an option that closely matches your requirements. Read further to know the various points of difference between both these investment options.

• What you Stand to Earn

The interest rate that you earn in both term and demand deposits vary according to the nature of the investment. While term deposits offer relatively high rates of interest, the interest earnings on demand deposits are comparatively lower.

Also, whether you select short-term investment options or long-term investment options as term deposits, the time for which you park your funds determine your returns.

This is because the longer the tenor, the higher will be your interest earnings. This means that if you are looking at long-term growth of your funds, then term deposits are better.

• Liquidity You Enjoy

In case of term deposits, the amount you put into investment is parked for a fixed term over which your corpus mature. This option prohibits premature withdrawals. In case you withdraw your funds, you need to provide advanced notice and will have to pay a fine or a penalty based on the terms of your issuer.

On the other hand, demand deposits offer better flexibility and greater liquidity. You can withdraw funds from your demand deposits as per your needs at any point of time without paying a penalty.

• Fees or Charges You Need to Bear

Term deposits usually do not feature any kind of penalties or fines. However, in case you decide on making a premature withdrawal you may need to pay a penalty or fine. The demand deposits on the other hand require you to pay various kinds of fees when applying and even during your tenor, since they offer you more flexibility and accessibility to money.

• Ease of Access

In case of term deposits, your role as the depositor starts and ends at investment. This investment option does not require your regular supervision. After the deposit reaches its maturity, you can again access your investment to withdraw the amount.

You do not have to track your interest earnings or monitor your investment with respect to market fluctuations in case of term deposits. However, your role reverses in case of a demand deposit. Here you get complete ease of access to your deposit account all along the time you keep your investment going. For example, you can view your account details, transact interest on a timely basis and even prematurely liquidate the account as per your requirement.  

These are some of the differences between both these investment options that you ought to know about. However, it is important to note that each option features a fixed set of limitations. While the term deposits offer poor liquidity, the demand deposits offer low returns. So, choose your deposits with care.

When it comes to term deposits, one of the most popular investments is in FDs. You can choose a long-term or a short-term FD based on your preference and select a trustworthy financial institution, such as Bajaj Finance to invest with. This Fixed Deposit comes with a FAAA/Stable rating from CRISIL. So, you can invest without any fear of losing your invested amount and gain from high earnings on your investment.