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Business Definition for: Certificate of Deposit (CD)
Dictionary of Accounting Terms
Certificate of Deposit (CD)

special type of time deposit. A CD is an investment instrument available at financial institutions generally offering a fixed rate of return for a specified period (such as three months, six months, one year, or longer). The depositor agrees not to withdraw funds for the time period of the CD. If the funds are withdrawn, a significant penalty is charged. The fixed rate of return nominally increases with the amount or the term of the investment.

Dictionary of Finance and Investment Terms
Certificate of Deposit (CD)

debt instrument issued by a bank that usually pays interest. Institutional CDs are issued in denominations of $100,000 or more, and individual CDs start as low as $100. Maturities range from a few weeks to several years. Interest rates are set by competitive forces in the marketplace.

See also market-indexed cd , brokered CD
Dictionary of Banking Terms
Certificate of Deposit (CD)

receipt for a time deposit issued for a stated time period and normally paying a fixed rate of interest. Bank CDs, issued in negotiable and non-negotiable form, have maturities as short as seven days to seven years or longer, and pay a market rate of interest. The interest earned on consumer CDs, which are non-negotiable debt instruments protected by federal deposit insurance up to $100,000 in interest and principal, is stated as an annual rate and an effective rate that shows the effect of interest compounding. Since 1983, when time deposit rates were deregulated and minimum deposit requirements were lowered, CDs have been enormously popular investment accounts with consumers. Banks and savings institutions also have issued zero-coupon CDs, which pay no interest until the maturity date, much like zero-coupon bonds.

A negotiable certificate of deposit has a principal of $100,000 (frequently $1 million or more), and can be sold to a new owner before maturity. Negotiable CDs are generally purchased by institutional investors, rather than individuals, and are actively traded in the secondary market,

Cashing in a bank CD before the maturity date can trigger an early withdrawal penalty , usually a partial loss of interest. Penalties are set by the issuing bank or savings institution.

See also jumbo certificate of deposit , Money Market Certificate (MMC) , yankee certificate of deposit , variable rate certificate , average annual yield , brokered deposit , eurodollar certificate of deposit
Dictionary of Business Terms
Certificate of Deposit (CD)

debt instrument issued by a bank that usually pays interest. Institutional CDs are issued in denominations of $100,000 or more, and individual CDs start as low as $100. Maturities range from a few weeks to several years. Interest rates are set by competitive forces in the marketplace.

Dictionary of Real Estate Terms
Certificate of Deposit (CD)

a type of savings account that carries a specified minimum deposit and term and generally provides a higher yield than passbook-type savings accounts.

Example: Carny purchased a 3-year certificate of deposit from Local Savings and Loan. Carny had to deposit at least $10,000 and could not withdraw the money for 3 years without forfeiting a portion of the interest earned. Carny received a yield of 5% annually.

Related Terms:
market-indexed cd

Certificate of Deposit (CD) with a return tied to a market index, such as the S&P 500 stock index. Principal is typically guaranteed against downside risk. Product is issued by banks and marketed by brokers.

brokered CD

Certificate of Deposit (CD) issued by a bank or thrift institution but bought in bulk by a brokerage firm and resold to brokerage customers. Brokered CDs pay as much as 1% more than those issued directly by major banks, carry federal deposit insurance up to $100,000, enjoy a liquid secondary market made by the broker, and do not require an investor to pay a commission.

jumbo certificate of deposit

certificate with a minimum denomination of $100,000. Jumbo CDs are usually bought and sold by large institutions such as banks, pension funds, money market funds, and insurance companies.

Money Market Certificate (MMC)

nonnegotiable certificate of deposit with a minimum denomination of $2,500 and an original maturity of at least seven days. Prior to January 1983, when the MMC was deregulated, the account was a six-month CD requiring an initial deposit of $10,000 to open an account, and paying a rate tied to the yield on six-month U.S. Treasury bills. With deregulation, maturities and rates paid depositors are set by management policy in individual financial institutions, not by government regulation.

yankee certificate of deposit

negotiable time deposit issued in the United States by a foreign borrower, usually in denominations of $1 million to $5 million. These certificates pay a fixed or variable rate of interest for a specified maturity, usually under 12 months, and are sold directly or through dealers. They are unsecured obligations of the issuing institution.

variable rate certificate

a Certificate of Deposit (CD) whose rate of interest is periodically adjusted in relation to some benchmark, such as the prime rate or a stock index.

average annual yield

average return per year for the entire term of a multiyear Certificate of Deposit (CD), assuming that compound interest earned remains on deposit. The average annual yield of a CD will be higher than the effective annual yield because it includes interest earned over a longer period of time.

brokered deposit

deposit, usually a Certificate of Deposit (CD)purchased from a broker acting as an agent for depositors. The broker, often a securities broker-dealer, pools CDs from many small investors and markets them to financial institutions, usually in blocks nearing $100,000, and negotiates a higher rate for CDs placed with the purchaser. Federal law prohibits undercapitalized banks and thrifts from accepting brokered deposits.

eurodollar certificate of deposit

CDs issued by banks outside the United States, primarily in Europe, with interest and principal paid in dollars. Such CDs usually have minimum denominations of $100,000 and short-term maturities of less than two years.

Referring Terms:
bear cd
bull CD
rollover
CD
time deposit
Copyright © 2005, 2000, 1995, 1987 by Barron's Educational Series, Inc., Reprinted by arrangement with Publisher.
 Copyright © 2006, 2003, 1998, 1995, 1991, 1987, 1985 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
 Copyright c 2006, 2000, 1997, 1993, 1990 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
 Copyright © 2007, 2000, 1997, 1987, by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
 Copyright © 2004, 2000, 1997, 1993, 1987, 1984 by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
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