when an account holder deposits funds at a bank the bank can use that money to lend to other consumers or businesses in return for the right to use these funds for lending they will pay the depositor compensation in the form of interest on the account balance 1 with most deposit accounts of this nature the owner may withdraw their money at any time this makes it difficult for the bank to know ahead of time how much they may lend at any given time 
to overcome this problem banks offer term deposit accounts a customer will deposit or invest in one of these accounts agreeing not to withdraw their funds for a fixed period in return for a higher rate of interest paid on the account the interest earned on a term deposit account is slightly higher than that paid on standard savings or interest bearing checking accounts 2 the increased rate is because access to the money is limited for the timeframe of the term deposit term deposits are an extremely safe investment and are therefore very appealing to conservative low risk investors the financial instruments are sold by banks thrift institutions and credit unions term deposits sold by banks are insured by the federal deposit insurance corporation fdic 3 the national credit union administration ncua provides coverage for those sold by credit unions 4