A certificate of deposit (CD) is a negotiable, unsecured money market instrument issued by banks and financial institutions. Unlike bank fixed deposits, CDs are negotiable and can be traded in the secondary market. Key features of CDs are summarised below.
| Feature | Description |
|---|---|
| Issuers | Commercial banks and select financial institutions |
| Minimum investment | ₹1 lakh and in multiples thereof |
| Tenure | 3 months to 1 year for banks; 1–3 years for financial institutions |
| Transferability | Dematerialised CDs can be transferred by endorsement and delivery |
| Premature withdrawal | Not permitted; no loans against CDs |
| Interest rate | Generally higher than savings accounts; may be comparable or slightly higher than FDs |
Advantages of certificates of deposit
- Safety: CDs are regulated by the RBI and provide assured returns.
- Flexibility: Investors can choose tenures and payout frequencies according to their needs.
- Potentially higher yield: CDs sometimes offer higher rates than bank FDs, especially for large deposits.
CDs are suitable for investors seeking a safe, short-term parking option with negotiability. They differ from FDs because they are negotiable instruments rather than traditional bank deposits.
