Concept
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Deposits refer to an amount of money deposited into a bank (in fact, the most basic definition of a bank is an entity that accepts deposits). Typically, deposits can be withdrawn (or called) at any time the depositing party wishes — to emphasize this, they can be known as ‘call deposits’.
In certain cases, deposits cannot be withdrawn immediately, but must remain with the bank for a specified period. These deposits are called term or time deposits. Connecting to the concept of liquidity presented in Module 1, call deposits are highly liquid: it is very quick and easy to convert the deposit into usable cash by simply withdrawing the deposit. Term deposits are relatively less liquid, because they cannot be easily and immediately converted to cash (although a bank may allow a term deposit to be withdrawn if a penalty amount is paid). Nonetheless, term deposits are more liquid than many other instruments traded in other financial markets (such as a ten-year loan).