Certificate of Deposit

Certificate of Deposit (CD) definition

/səˈtɪfɪkət/ /ɒv/ /dɪˈpɒzɪt/

What does Certificate of Deposit mean?

A negotiable bearer instrument which is evidence of a fixed term deposit with a bank and which either bears interest (at a fixed or variable rate) or is issued at a discount. Certificate of deposit are commonly issued with maturities between one month and five years.

Certificate of Deposit explained

The advantage for the bank is that certificate of deposits are a simple and flexible way of obtaining fixed term funding from both retail and institutional investors. Documentation and administration costs are minimal. The advantage for investors is that, as a fixed term deposit, a certificate of deposit will generally bear interest at a higher rate than an equivalent deposit in a savings or call deposit account. In the UK, certificate of deposits issued by banks are guaranteed under the Financial Services Compensation Scheme up to the current scheme maximum amount.

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