What typically distinguishes time deposits from other accounts?

Time deposits, such as certificates of deposit (CDs), are distinguished from other types of accounts primarily because they offer higher interest rates compared to more liquid accounts like checking accounts. This higher interest rate is a reward for customers agreeing to leave their funds deposited for a fixed period of time. The financial institution benefits from being able to use the funds for a set duration, which allows them to provide a higher return to the account holder.

While it is true that time deposits typically require a minimum balance to open, that characteristic is not unique to time deposits, as many accounts have minimum balance requirements. Additionally, time deposits restrict withdrawals without penalties during their term; this limitation is another factor that differentiates them from checking and savings accounts, where access to funds is more flexible. Lastly, time deposits do earn interest income, contrary to the statement in one of the options. Therefore, the feature of earning higher interest rates is a defining characteristic of time deposits.