You make a money deposit to your bank with condition that the money cannot be withdrawn for a certain period of time. Depending on the chosen term, bank will offer you different interest rates. For example – you deposit $1000 for 1 year, and get 1% interest. After the year has passed, you will have earned 1% of $1000 or $10.
$10 return is not much, but that is what you get for a very safe investment – you know exactly how much you will get back before investing and unless your bank or government fails, your money should be safe. But before you do any time deposits, consider also the drawbacks:
1. Your money is frozen for the selected period of time and you cannot use it. In case you decide to withdraw it sooner, you will need to pay a penalty that will most likely be higher than the interest rate.
2. In most stable countries inflation is higher than interest rates from time deposits, so if the interest rate is 1% and inflation is 2%, then after 1 year you will have gained $10 from investment and lost $20 to inflation. In short – you freeze your money, let bank make profit from it and get back less that you had.