A certificate of deposit
) is a time deposit, a financial product commonly sold in the United States and elsewhere by banks, thrift institutions, and credit unions.
CDs are similar to savings accounts in that they are insured "money in the bank" and thus virtually risk free. In the USA, CDs are insured by the Federal Deposit Insurance Corporation (FDIC) for banks and by the National Credit Union
Administration (NCUA) for credit unions. They differ from savings accounts in that the CD has a specific, fixed term (often one, three, or six months, or one to five years) and, usually, a fixed interest rate
. The bank intends that the customer hold the CD until maturity, at which time they can withdraw the money and accrued interest
In exchange for the customer depositing the money for an agreed term, institutions usually grant higher interest rates than they do on accounts that customers can withdraw from on demand—though this may not be the case in an inverted yield curve situation. Fixed rates are common, but some institutions offer CDs with various forms of variable rates. For example, in mid-2004, interest rates were expected to rise—and many banks and credit unions began to offer CDs with a "bump-up" feature. These allow for a single readjustment of the interest rate, at a time of the consumer's choosing, during the term of the CD. Sometimes, financial institutions introduce CDs indexed to the stock market, bond market, or other indices.
Some features of CDs are:
- A larger principal should/may receive a higher interest rate.
- A longer term usually earns a higher interest rate, except in the case of an inverted yield curve (e.g., preceding a recession).
- Smaller institutions tend to offer higher interest rates than larger ones.
- Personal CD accounts generally receive higher interest rates than business CD accounts.
- Banks and credit unions that are not insured by the FDIC or NCUA generally offer higher interest rates.
CDs typically require a minimum deposit, and may offer higher rates for larger deposits. The best rates are generally offered on "Jumbo CDs" with minimum deposits of $100,000.
The consumer who opens a CD may receive a paper certificate, but it is now common for a CD to consist simply of a book entry and an item shown in the consumer's periodic bank statements. That is, there is often no "certificate" as such. Consumers who want a hard copy
that verifies their CD purchase may request a paper statement from the bank, or print out their own from the financial institution's online banking service.