Certificates of Deposits

Certificates of Deposit or CDs are money market instruments of a relatively short duration that pay a fixed rate of interest until a given maturity date. In the retail financial market, opening a Certificate of Deposit typically involves placing liquid funds into a savings account with a retail financial institution that offers a fixed interest rate until the set maturity date arrives. Also, funds placed in such a CD cannot usually be withdrawn or can perhaps only be withdrawn with advanced notice and/or by having a penalty assessed.

What are the different types of certificates of deposit around the world?

Individuals, businesses and financial institutions around the world use Certificates of Deposit as a means of storing their liquid funds for a fixed period of time for future use. In the retail market, CDs are typically known as term deposits in countries like Australia, Canada and New Zealand, as time deposits in the United States, as bonds in Great Britain, and as fixed deposits in some other countries like India, for example.

Which companies provide certificates of deposit?

Certificates of Deposit are provided by retail financial institutions such as banks, savings and loan corporations and credit unions that are usually regulated within the country in which they operate. In the United States, funds deposited in Certificates of Deposit are protected up to a certain amount by the Federal Deposit Insurance Corporation or FDIC when the Certificate of Deposit is placed with a financial institution that is also an FDIC member.

How do certificates of deposit different from savings accounts?

Although the terms of specific Certificates of Deposit can vary significantly among financial institutions and countries, the retail versions generally differ from retail checking and savings accounts since they cannot be used as money by allowing the account holder to make withdrawals without incurring a significant penalty. CDs also differ from such accounts by having a fixed maturity date after which funds are either returned or automatically rolled over.

How risky are certificates of deposit and what are their rate of return?

Substantial investment security is provided by Certificates of Deposit held with reputable and insured financial institutions, but as a result of this perceived lack of risk, they usually offer a relatively low nominal rate of return or interest to the deposit holder compared to riskier investments like corporate stocks or bonds.

Nevertheless, due to the relative unavailability of funds to the account holder during the deposit’s term, this tends to increase the return on Certificates of Deposit over that available on otherwise comparable savings accounts.

Top Certificate of Deposits Rates