Time Deposits

Time Deposits. A. A time deposit is a contract between an individual and a financial institution whereby the individual agrees to leave funds on deposit for a specified period of time (six months, two years, five years, etc.) and the financial institution agrees to pay interest at a specified rate for that period. 1. Certificates of Deposit and savings certificates are common forms of time deposits. 2. The ownership assumptions regarding ownership of bank accounts apply to time deposits. B. Withdrawal of a time deposit before the specified period expires incurs a penalty which is usually imposed against the principal. The penalty does not prevent the time deposit from being a resource, but it does reduce its value as a resource. 1. The resource value of a time deposit at any given time is the amount the owner would receive upon withdrawing it at that time, excluding interest paid that month. Generally this is: a) Amount originally deposited; b) Plus accrued interest for all but the current month; and c) Minus any penalty for early withdrawal. C. On rare occasions, the terms of a time deposit may prohibit early withdrawal altogether. When early withdrawal is prohibited, principal and interest are treated as follows: 1. Principal. a) If the owner of a time deposit cannot under any circumstances withdraw the principal before it matures, the principal is not a resource. It becomes a resource (not income) on the date it matures and may affect countable resources for the following month. 2. Interest. a) If the owner has no access to the interest before the deposit matures, accrued interest is also not a resource. The interest is not counted as income in the month the deposit matures, but as a resource the month after maturity.