Banks around the world offer two simple ways to earn a guaranteed interest rate: a fixed or term deposit (called a certificate of deposit, or CD, in the United States) and a regular savings plan, where you pay in a set amount every month. Both are low-risk. The difference is how you put your money in.
How a fixed deposit works
You deposit a lump sum once for a fixed term, from a few months to several years. The bank pays a fixed rate for the whole term. Interest may be paid out monthly or yearly, or added to the deposit and paid at maturity. In return for the higher rate, you usually cannot withdraw early without a penalty.
Best for: money you already have and won’t need for a while, such as a bonus, an inheritance or savings set aside for a future goal.
How a regular savings plan works
You commit to paying in a fixed amount every month, for example $200, for a set period, often 12 months. Many banks offer attractive rates on these accounts to encourage saving. Some limit how much you can pay in each month and how many withdrawals you can make.
Best for: building a saving habit from your salary, or saving for a known goal like a holiday, a car or school fees.
Side-by-side
| Fixed deposit / CD | Regular savings plan | |
|---|---|---|
| How you pay in | One lump sum | A set amount each month |
| Interest rate | Fixed for the term | Often fixed; sometimes variable |
| Interest earned | Higher, because the full amount earns interest all along | Lower in total, because each payment earns interest only for its remaining months |
| Access to money | Early withdrawal usually costs a penalty | Limited withdrawals; missing payments may lower the rate |
Understand the true return
- Compare the annual yield (often shown as APY or AER), which includes compounding, rather than the headline rate.
- Consider inflation: if inflation is 3% and your deposit pays 4%, your real gain is about 1%.
- Tax: interest is taxable income in many countries, although some offer tax-free savings allowances or accounts.
Is your money protected?
Most countries have a deposit insurance scheme that protects bank deposits up to a limit if a bank fails. For example, the FDIC in the United States covers up to $250,000 per depositor, per insured bank, per ownership category, and EU countries protect at least €100,000 per depositor per bank. If you have more than the limit, spread it across banks.
Which should you choose?
- Have a lump sum now? A fixed deposit usually earns more.
- Saving from monthly income? A regular savings plan builds discipline.
- Want flexibility? Use a deposit ladder: split your money into several deposits that mature at different times, so some cash is always becoming available.
Rates and terms differ between banks and change often. Compare current offers and read the terms before opening an account. This article is general information, not financial advice.