Definition of callable certificate of deposit

Certificate of Deposit that includes a call feature by the issuing bank. The bank may call the CD if interest rates decline prior to maturity. Callable CDs pay a higher rate than noncallable CDs due to this investment risk. Callable CDs are issued in a variety of options to meet investor needs: the fixed-interest rate CD, step-up CD and multi-step CD (giving the holder the right to adjust the yield upward once in the life of the CD or at predetermined intervals); and the step-down CD (the yield is adjusted downward if market rates fall). Most callable CDs credit interest to the holder's account semi-annually, but monthly payment and zero-coupon cds are also issued. Most callable CDs offer a put option exercisable at the death of the account holder, allowing beneficiaries to sell the CD back to the issuing bank.