Term deposits are an important tool for managing surplus funds in companies and must be properly recognised in the accounting books and presented in the balance sheet. Correctly classifying deposits as financial assets and properly recording the interest on them is key to giving a reliable picture of the entity's assets and financial position. Different rules apply, by contrast, to interest on trade receivables, such as late-payment interest charged to a customer.
Example: IT-Solutions has surplus funds of PLN 500,000, which it plans to place on a 12-month deposit at 5% per year. With proper bookkeeping, the company will be able to track both the principal and the accrued interest precisely, which will help it manage its liquidity well.
Bank term deposits are a way of investing cash that lets companies earn additional finance income while keeping their liquidity. Depending on when they fall due, deposits are classified as current or non-current assets, which directly affects how they are presented in the balance sheet and how the company's financial structure is assessed.
What bank term deposits are
Cash held in bank accounts is in fact money lent to banks under agreements for various types of bank accounts. These may be:
- Current accounts
- Term deposit accounts
- Savings accounts
- Other forms of bank deposits offered by financial institutions
Banks use the funds entrusted to them in their operations and pay interest to their customers for them. This interest is a kind of price that the debtor – the bank – pays its creditor, the business, for being able to use its assets for a specified period.
The amount of interest on term deposits depends on the interest rates applied by the bank and on the method of calculating interest. The bank may use different forms of capitalisation, including simple or compound interest, which affects the final return on the deposit for the company
Term deposits differ from other forms of deposits mainly in how long the funds are locked in and in the conditions for withdrawing them. Unlike current accounts, funds on term deposits cannot be withdrawn before the agreed date without certain costs or the loss of part of the interest.
For companies, term deposits are an attractive way to invest surplus funds, especially when they are not needed for day-to-day operations. They make it possible to earn higher returns than ordinary current accounts while keeping investment risk relatively low.
Term deposits are covered by the deposit guarantee scheme, which means that funds up to a certain amount are protected by the Bank Guarantee Fund (Bankowy Fundusz Gwarancyjny). Under the Bank Guarantee Fund Act (Article 24(1), as in force in 2026), the guarantee covers deposits up to the PLN equivalent of EUR 100,000 per depositor per bank
Recording term deposits in the accounting books
Bank term deposits are recorded in the accounting books using a dedicated account, 135 "Bank term deposit account". This is an asset account used to track the balance of cash placed on term deposits in various banks.
The entity may keep detailed sub-ledgers for this account, so that it can monitor the balance of funds on each deposit on an ongoing basis. The sub-ledgers can be kept by various criteria:
- Name of the bank
- Maturity date of the deposit
- Currency of the deposit
- Interest rate
Opening a new term deposit requires an entry that reflects the transfer of funds from the current account to the term deposit account. This transaction does not change the company's total cash, but it does change its structure and availability.
When keeping sub-ledgers for term deposit accounts, it is worth including information on the length of the deposit, the opening date and the maturity date. This makes liquidity planning easier and helps you keep control of when each deposit falls due
Booking the opening of a term deposit
Opening a term deposit is recorded in the accounting books through the following process:
- Preparing the documents and concluding an agreement with the bank
- Transferring funds from the current account to the term deposit
- Making the appropriate accounting entry
- Opening a sub-ledger card for the new deposit
Entry for opening a deposit:
- Debit account 135 "Bank term deposit account" (with the sub-ledger identifying the specific deposit)
- Credit account 130 "Current account" (the account from which the funds were transferred)
This entry reflects a change in the form in which cash is held, from the current account to a term deposit. The amount debited to account 135 equals the principal of the deposit, without the future interest that will accrue during the term of the deposit.
Closing a term deposit
Closing a term deposit involves the following stages:
- Checking the maturity date of the deposit
- Calculation of the final interest by the bank
- Transfer of the funds together with interest to the current account
- Making the accounting entry for closing the deposit
Closing a term deposit at the end of the agreed period, or when it is terminated early, requires the reverse entry:
- Debit account 130 "Current account" (the account to which the funds are transferred)
- Credit account 135 "Bank term deposit account" (with the appropriate sub-ledger)
The amount booked when the deposit is closed includes both the principal and the accrued interest. The interest is also recognised as finance income under the separate rules described below.
If a term deposit is closed early, the bank may charge contractual penalties or reduce the interest. Such costs should be booked as finance costs to account 751 "Finance costs" with the appropriate sub-ledger
Recording interest on term deposits
Interest on term deposits is finance income of the company and is recorded in account 750 "Finance income". When the interest is booked depends on the entity's accounting policy and on the interest rules set out in the agreement with the bank. Finance income, including deposit interest, is recorded in the books we keep as part of our bookkeeping services.
Under Article 42(3) of the Accounting Act, the result on financial operations is the difference between finance income and finance costs. Finance income includes in particular:
- Dividends
- Interest
- Gains on disposal and revaluation of investments
- The excess of positive over negative exchange differences
Booking accrued interest
Interest on a term deposit is calculated and booked in the following steps:
- Calculating the amount of interest under the bank agreement
- Checking it against the interest terms
- Making the accounting entry for the accrued interest
- Updating the deposit's sub-ledger card
Accrued interest on a term deposit is booked with the following entry:
- Debit account 135 "Bank term deposit account" (with the sub-ledger identifying the deposit)
- Credit account 750 "Finance income" (with the sub-ledger "Interest on deposits")
This entry reflects the increase in the value of the deposit by the accrued interest and the simultaneous recognition of finance income equal to the accrued interest. The interest may be booked on an ongoing basis under the accrual principle or periodically according to the entity's internal rules.
Interest on term deposits is subject to income tax under the applicable rules. For legal persons, interest increases the CIT (corporate income tax) base, while for individuals running a business it may be subject to PIT (personal income tax). For tax purposes, interest that has accrued but has not been received is not revenue (Article 12(4)(2) of the CIT Act, Article 14(3)(2) of the PIT Act) – as a rule, taxable revenue arises when the interest is received, so the tax moment may differ from the accounting one
Practical example of recording a deposit
TechTools sp. z o.o. (limited liability company) decides to place surplus funds of PLN 100,000 on a term deposit for 10 months. The deposit is opened at 4.5% per year with monthly capitalisation of interest. The company keeps detailed sub-ledgers that let it monitor the return on the investment and plan future cash flows.
Opening the term deposit is booked as follows:
- Debit account 135 "Bank term deposit account" (sub-ledger: "Term deposit 10M Bank XYZ") - PLN 100,000
- Credit account 130 "Current account" - PLN 100,000
Monthly accrual of interest on the deposit:
- Debit account 135 "Bank term deposit account" (sub-ledger: "Term deposit 10M Bank XYZ") - amount of accrued interest
- Credit account 750 "Finance income" (sub-ledger: "Interest on deposits") - amount of accrued interest
When recording term deposits, it is worth keeping detailed sub-ledgers that identify each deposit by bank, term and interest conditions. This makes control and cash flow planning easier
Classifying deposits as financial assets
Under Article 3(1)(24) of the Accounting Act, financial assets include:
- Monetary assets
- Equity instruments issued by other entities
- A contractual right to receive monetary assets
- A right to exchange financial instruments with another entity on favourable terms
Bank term deposits are financial assets in the form of monetary assets. How they are classified in the balance sheet depends on when they fall due, which directly affects the assessment of the company's liquidity and the structure of its assets.
Dividing financial assets by maturity
From the point of view of how long the funds are locked in, financial assets are divided into:
- Short-term financial assets - payable and due within 12 months of the balance sheet date
- Long-term financial assets - due more than 12 months after the balance sheet date
- Cash - deposits payable or due within 3 months of the date they were opened, which are treated as cash for the purposes of the cash flow statement (Article 3(1)(25) of the Accounting Act)
Under Article 3(1)(18)(b) of the Accounting Act, financial assets are classified as current if they are payable and due, or intended for sale, within 12 months of the balance sheet date or of the date they were opened, issued or acquired, or if they are monetary assets
This classification is key to presenting deposits correctly in the balance sheet and to how users of the financial statements assess the company's financial structure.
Criteria for classifying term deposits
How a particular term deposit is classified in the balance sheet depends on the following factors:
- Maturity of the deposit - the main criterion for classification
- Balance sheet date - the reference point for assessing the remaining period to maturity
- Possibility of early termination - affects the assessment of the deposit's liquidity
- Management's intention - whether the deposit is a long-term investment or a short-term placement of surplus funds
Presenting term deposits in the balance sheet
In a balance sheet prepared under Annex No. 1 to the Accounting Act, bank term deposits are presented in different line items depending on when they fall due. Correct classification matters for assessing liquidity and the structure of the company's assets. The maturity date also determines how liabilities paid in instalments are presented — one example is a ZUS instalment agreement in the balance sheet.
Long-term financial assets
Term deposits falling due more than 12 months after the balance sheet date are presented within non-current assets, under long-term investments. The detailed presentation is divided into:
| Balance sheet item | Description | Example |
|---|---|---|
| A.IV.3(a) | Related entities - other long-term financial assets | Deposits with banks in the corporate group |
| A.IV.3(b) | Other entities in which the entity holds an equity interest - other long-term financial assets | Deposits with banks in which the entity holds shares |
| A.IV.3(c) | Other entities - other long-term financial assets | Deposits with external banks |
Short-term financial assets
Term deposits falling due in 3 to 12 months are presented within current assets, under short-term investments:
| Balance sheet item | Description | Characteristics |
|---|---|---|
| B.III.1(a) | Related entities - other short-term financial assets | 3–12 month deposits with banks in the group |
| B.III.1(b) | Other entities - other short-term financial assets | 3–12 month deposits with external banks |
Cash and other monetary assets
Term deposits falling due within 3 months of the date they were opened are presented as cash:
- B.III.1(c) "Cash and other monetary assets", sub-item "other cash" - deposits opened for up to 3 months
Interest accrued on term deposits that is not yet due at the balance sheet date is presented in the same balance sheet items as the deposits it relates to. It increases the amount shown in that item
Practical aspects of managing term deposits
Managing term deposits effectively requires taking many financial and operational factors into account. Decisions on placing surplus funds should be made in the context of the overall financial strategy and the entity's current liquidity needs.
Planning the deposit structure
When planning the structure of term deposits, companies should take into account:
- Forecast cash flows - so that funds are available when needed
- Spreading maturities - spreading liquidity risk over time
- Getting the best interest rate - choosing the most favourable bank offers
- Financial flexibility - the ability to respond to unexpected needs
Control and monitoring of deposits
An effective system for controlling term deposits should include the following elements:
- A register of all deposits opened, with their maturity dates
- Monitoring of due dates and planning of reinvestment
- Comparing the actual interest rate with market conditions
- Checking compliance with the company's financial policy
- Analysing the return on investments in term deposits
It is worth keeping a detailed maturity calendar for term deposits to make it easier to plan cash flows and decide on reinvesting funds. The calendar should show both maturity dates and the expected amounts that will become available
Tax planning
Interest income from term deposits is taxable, so companies should take tax aspects into account when planning investments:
- When the income is realised - the effect on the tax result in individual periods
- The option of spreading income over time by choosing suitable terms
- Coordination with other elements of the company's tax strategy
Analysing the return on term deposits
Assessing whether investing in term deposits pays off requires a comprehensive analysis that considers not only the nominal interest rate but also other factors affecting the real return on this form of investment.
Factors affecting the return
The real return on term deposits depends on:
- The nominal interest rate offered by the bank
- The method of capitalising interest - simple or compound
- How often interest is capitalised - monthly, quarterly, annually
- Inflation - its effect on the real value of the interest received
- Tax costs - tax on interest income
- Opportunity costs - comparison with other forms of investment
Comparison with alternative investments
When deciding whether to place funds on term deposits, it is worth comparing them with other available options:
- Treasury bonds - may offer a higher interest rate at low risk, depending on the terms of the issue and the market
- Corporate bonds - higher interest, but higher risk
- Money market funds - more flexibility, but no capital protection
- Savings accounts - lower interest, but greater liquidity
Comparative example: A company is considering three options for investing surplus funds of PLN 200,000: a 6-month term deposit at 4.2%, 6-month treasury bonds yielding 4.8%, and a money market fund with an expected return of 3.5–5.5%. After analysing the risks and its liquidity needs, the management board decides to split the funds: 60% in the term deposit for safety, 30% in bonds for a higher return, and 10% in the fund for flexibility.
When choosing how to invest surplus funds, what matters is not only the potential return but also the level of risk, the liquidity of the investment and whether it fits the company's risk profile and financial strategy
Legal and regulatory aspects
As a form of banking activity, term deposits are subject to detailed legal regulations designed to protect depositors' interests and ensure the stability of the financial system.
Regulations on bank deposits
The basic legal acts governing term deposits are:
- Banking Law Act - sets out the rules for conducting banking activity
- Bank Guarantee Fund Act - the deposit protection scheme
- Regulations of the Polish Financial Supervision Authority (KNF) - supervision of the financial market
- Accounting Act - rules for recording and presenting deposits in financial statements
Deposit guarantee scheme
Term deposits are covered by the deposit guarantee scheme, which protects depositors' funds if a bank fails:
| Element of the scheme | Characteristics | Details |
|---|---|---|
| Amount of the guarantee | Up to the equivalent of EUR 100,000 | Per depositor per bank |
| Scope of the guarantee | Principal and interest accrued up to the day the guarantee condition is met | All deposits in the bank combined |
| Payout procedure | Based on the list of depositors provided by the bank | No application needed |
| Payout deadline | Up to 7 working days | From the day the guarantee condition is met (Article 35(3) of the Bank Guarantee Fund Act) |
The deposit guarantee scheme is financed by contributions paid by banks and is an important element of the safety of investing in term deposits. The guarantee covers all of a customer's deposits in one bank combined, regardless of the number of accounts
