Your most liquid asset, money, can be in various forms – physical cash, bank accounts and bank deposits. Even if the deposits have strict rules, i.e. you cannot take the money out until only after the term, it is still “money”. Although, yes, if the “term” is longer than 3 months, it’s accounted as a financial investment rather than “Cash and cash equivalents”. 

So, after you’ve decided to put some of your money onto a deposit account, consider the period you want your money to be deposited. It’s not so much the accounting aspect, but the aspect of having your money on a bank account you really cannot withdraw it easily from. Considering also the interest rates you could earn from various options, find a term that suits you the most.

As for the accounting aspect there are two things to note:

• One of the things we already mentioned is the term the deposit is made for. It is generally accepted that deposits longer than 3 months are considered financial investments rather than cash equivalent accounts. It is subject to your local accounting standards obviously, but as a general rule the line should be drawn somewhere. Should the term be longer than 12 months, the deposit is even shown under non-current assets as a long term investment.
• The reason why someone would use deposits, is apparent, to earn interest revenue (as generally deposits have higher interest rates compared to usual bank accounts). This interest revenue should be treated the way the bank treats it. On one hand it’s your financial income on the income statement, and on the other hand, on the balance sheet it can be one of the two things – either an increase on your normal bank account or if the bank so chooses, an increase of your deposit itself. It depends on whether the bank decides to give you the money to be used (as in onto your bank account) or to be reinvested so onto the deposit account.

Not much but still a few things to look out for!