certificate of deposit

Updated on: 26 Jul 2017

Definition of certificate of deposit

  1. :  a money-market bond of a preset face value paying fixed interest and redeemable without penalty only on maturity

First Known Use of certificate of deposit

1846


Financial Definition of CERTIFICATE OF DEPOSIT

certificate of deposit

What It Is

A certificate of deposit (CD) is a relatively low-risk debt instrument purchased directly through a commercial bank or savings and loan institution.

How It Works

The certificate of deposit indicates that the investor has deposited a sum of money for specified period of time and at a specified rate of interest. CD rates, terms and dollar amounts will vary from institution to institution. CDs are not publicly traded securities. As such, you will not find them traded on any exchange. You can also purchase CDs through a stockbroker. Because brokers have access to CDs from many institutions across the country, investors have more choices in regard to terms and yield. Many brokers do not charge investors a fee for CDs. Instead, they usually receive a commission from the issuing bank. Since brokered CDs are still bank CDs, they are insured by the FDIC (Federal Deposit Insurance Corp). up to $250,000.

Why It Matters

A CD is especially beneficial for a risk-averse investor who is looking to save and will not need funds until the instrument reaches maturity. Attributes of CDs making them favorable to such investors include:

Array

While disadvantages are:

Array


Law Dictionary

certificate of deposit

  1. :  a money-market bond of a preset face value (as $10,000) paying fixed interest and redeemable without penalty only on maturity (as after two years)


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