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 If the funds are withdrawn, a significant penalty is charged.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.
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.
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.
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.
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.
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.
