What is Certificate Of Deposit?

Legal Definition
A certificate of deposit (CD) 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.
-- Wikipedia
Legal Definition
A time DEPOSIT issued by a BANK to a depositor that pays a fixed or variable INTEREST RATE; in most instances the deposit represents a senior, unsecured LIABILITY of the issuing bank. A CD may be issued onshore or offshore in any one of several currencies, with a final maturity ranging from 1 week to 10 years. Certain CDs (i.e., NEGOTIABLE CDs) can be actively traded in the SECONDARY MARKET. See also FLOATING RATE
Legal Definition
In the practice of bank ere. This is a writing acknowledging that the person named has deposited in the bank a specified sum of money, and that the same la held subject to be drawn out on his own check or order, or that of some other person named in the instrument as payee. Murphy v. Pacific Bank, 130 Cal. 542, 62 Pac. 1059; First Nat Bank v. Greenville Nat. Bank, 84 Tex. 40, 19 S. W. 334; Neall v. U. S., 118 Fed. 706, 56 C. O. A. 31; Hotchkiss v. Mosher, 48 N. Y. 482.
-- Black's Law Dictionary
Legal Definition
An obligation, or promissory note of the bank issuing it. See 14 How1. (U. S.) 240, 14 L. Ed. 404.
-- Ballentine's Law Dictionary