Is a Time Deposit a Security or a Cash Item?

By James W. Kaiser, CPA
Partner, Investment Management Group

Is a Time Deposit a security or a cash item?  The answer is both.  There are very few short-term instruments that are treated as a cash item under the 40 Act.  The SEC has long considered time deposits and other money market instruments to be securities.  Therefore, for the purposes of financial statement presentation, time deposits are indeed securities.

Not surprisingly however, the IRS guidance available on this subject is inconsistent with the SEC.  There are General Counsel Memorandums and Treasury Regulations that clearly include Time Deposits in the definition of a cash item.  Therefore, for the purposes of the asset diversification test, one could reasonably treat Time Deposits as a cash item.  Therefore, a Time Deposit is both a cash item and a security, depending on the purpose of the classification.