Reasons for Term Deposit Termination

There are valid reasons for taking out term deposits before they mature.Usually, it involves something important to spend the money on. Most often, depositors pre-terminate their deposits to pay for some emergencies like hospitalization and urgent home repairs, say after a typhoon. Other times, there are home improvements that simply cannot wait and the expenses could be substantial such that they have to dip into their deposits. When they do that, they will earn less than the agreed rate when they first made the term deposit because banks frown on this practice which throws their funding requirements into disarray. They discourage it and penalize you with a lower interest rate. Before making a term deposit, make sure the funds will not be needed somewhere during the term.

Making a term deposit (other countries call it as a time deposit certificate) has some caveats built into it. This means when you open a term deposit, say for example a one-year CTD (certificate of time deposit), that gives you a high rate, you also implicitly agree not to withdraw this money within that time frame. In case you will be forced to get the money before maturity, certain penalties come into effect. A penalty usually entails a reduced interest rate will be applied to the deposit because the bank will be forced to redeploy its resources to cover up for this unexpected withdrawal by you. If the money had been lent out, this means a bank will have to find another source and unscheduled sourcing can be expensive.