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The Certificate of Deposit (CD) is an agreement between the depositor and the bank where a predetermined amount of money is fixed for a period and the bank pays interest on it. It is a money market instrument issued against some funds for a specific tenure, a promissory note by the bank and insured by the Federal Deposit Insurance Corporation (FDIC).

The Reserve Bank of India (RBI) issues guidelines for the CD from time to time. The Certificate of Deposit is issued in dematerialised form i.e. issued electronically and may automatically be renewed if the depositor fails to decide what to do with the matured amount during the grace period of 7 days. It also restricts the holder from withdrawing the amount on demand or pay a penalty, otherwise. When the Certificate of Deposit matures, the principal amount along with the interest earned is available for withdrawal.

Certificate of Deposit: Features

The following are the salient features of the Certificate of Deposit:

  • Eligibility: Only scheduled commercial banks/financial institutions in India (allowed by RBI) can issue Certificates of Deposit. Co-operative banks and Regional Rural Banks cannot issue these certificates. These can only be issued to individuals, companies, funds, etc. It can be issued to Non-Residential Indians (NRIs) on non-repatriable basis.
  • Maturity Period: A Certificate of Deposit issued by the commercial banks can have maturity period ranging from 7 days to 1 year. For financial institutions, it ranges is from 1 year to 3 years. Minimum amount to be deposited is Rs. 1 Lakh.
  • Transferability: Certificates which are available in demat forms must be transferred according to the guidelines followed by demat securities. While dematerialised/electronic certificates can be transferred by endorsement or delivery.
  • Availability of Loan: Since these instruments do not have any lock-in period, banks do not grant loans against them. In fact, banks cannot even buy back certificates of deposit before maturity. They will have to first consider the Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) on the issued Certificate of Deposit Rates or prices.

Certificate of Deposit Advantages and Disadvantages

Advantages Disadvantages
  • Fund or the principal amount is safe with Certificates of Deposit. Hence, they are less risky than stocks, bonds and other volatile instruments
  • The Certificate of Deposit offers a higher rate of interest and better returns as compared to traditional savings accounts
  • The grace period of 7 days is granted to decide the future investment of the matured amount
  • The invested amount is parked for the preferred duration and withdrawal of the amount is only possible by paying a penalty. Hence, it has limited liquidity
  • CD interest rates are renewed by banks if one fails to decide what to do with the matured amount and the new interest rate might be lesser than other investment options
  • Interest rates on CD are not tied to the rate of inflation and hence the value of money may decrease with increasing inflation


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