What it is
In a time deposit, pre-termination is what happens when you close the account and take your money out before the term ends, which is when the time deposit reaches maturity.
This can happen for many reasons, but it’s usually because you have an urgent need for the money and can’t get it anywhere else.
You’ll have to pay a certain penalty related to the pre-termination. Exactly how much is usually determined by how far away the end of the term is, but it will likely be based on the interest that has already been earned.
What it means for you
Pre-terminating a time deposit isn’t a decision that you should make lightly. That’s because you’ll be getting less than you would have if you had kept it in, since you’ll be taking the money back instead of allowing it to earn for you.
After finding what they believe to be a good investment prospect, some people may also choose to end their time deposit early (even if this means reducing the profit they would get) and put the money in the new investment instead.
If you find yourself in this situation, remember to do the math first to see if the new investment could earn enough to make up for the smaller returns caused by the pre-termination. Keep in mind that there’s no guarantee that this will actually happen, and so you should make your decision with care.
