Fixed-term deposit — Definition Explained Simply | Examples & Role
A fixed-term deposit is a bank deposit with a predetermined term and a fixed interest rate, where the funds cannot be withdrawn before the end of the term without losing the agreed conditions. Some banks also offer fixed-term deposits in foreign currencies.
What is a fixed-term deposit (Festgeld / Termingeld)
A fixed-term deposit is a type of bank account where a customer deposits money for a specific period (for example, 6, 12, or 24 months) at a fixed interest rate. During this period, the funds are “locked in” and cannot be withdrawn without forfeiting interest. The interest rate is agreed upon in advance and remains unchanged until maturity.
Main features
Fixed-term deposits are known for their stability and transparency: the rate is fixed, the term is defined, and the return can be calculated in advance. This makes them popular among individuals and businesses seeking capital preservation and a predictable, guaranteed income without market risk.
Terms and interest rates
Banks offer various terms ranging from 3 months to several years. The longer the term, the higher the interest rate tends to be. Fixed-term deposit rates are generally higher than those of current accounts (Girokonto), since the bank can use the funds for a set period.
Foreign currency fixed-term deposits
Some banks, such as Commerzbank, offer fixed-term deposits not only in euros but also in foreign currencies — for example, US dollars (USD), Swiss francs (CHF), or British pounds (GBP). Such foreign currency deposits allow diversification of savings but carry a currency risk: if the foreign currency weakens against the euro, the actual profit may decrease. Commerzbank notes that the interest rate on such deposits remains fixed for the entire term, and deposit protection also applies to foreign currency deposits under the same conditions as euro deposits.
Advantages and limitations
- Advantages: Fixed income, protection from market fluctuations, security, simplicity.
- Limitations: No access to funds until maturity, loss of interest in case of early withdrawal, currency risk with foreign deposits.
Deposit protection and security
All fixed-term deposits in Germany are covered by the deposit guarantee scheme — up to €100,000 per depositor and per bank. Many banks, including Commerzbank, also participate in voluntary protection funds, increasing coverage to several million euros for private and corporate clients.
Use and examples
- A client deposits €10,000 for 12 months at 3 % interest — after one year they receive €10,300.
- A company invests in a 6-month fixed-term deposit in US dollars — the income is fixed, but the final return in euros depends on the USD/EUR exchange rate.
- If funds are withdrawn early, the bank may deduct interest or return only the principal without income.
When to choose a fixed-term deposit
This type of deposit is suitable for those who want to preserve capital and know their return in advance. It is less suitable for short-term goals or during periods of rising market rates, when fixed rates may become less attractive.