What is Certificate of Deposit (CD)

A Certificate of Deposit (CD) is a safe investment tool that generates decent returns. Read on to know everything about it

A Certificate of Deposit (CD) is an interesting investment product for investors with ready capital. It is a safe investment tool that offers decent returns. While they are often interchangeable with fixed deposits (FDs), CDs are freely negotiable. The same doesn’t always apply to FDs.

Today, we will discuss what is a Certificate of Deposit. Besides what is a CD account, we will also talk about what it does and how it functions. Let us get into the nuances of what is a Certificate of Deposit.

What is a Certificate of Deposit or CD?

A Certificate of Deposit is a bank or credit union offering that pays a higher interest rate to investors maintaining a lump-sum deposit for a set length of time. Almost all public financial institutions issue CDs, albeit bank CD rates vary from one bank to another. Bank CD rates also factor in the bank's savings, their money market offerings, and what consequences it would impose for early termination.

When looking for the best CD rates, it is important to evaluate your options. Your local bank may pay a small amount on even long-term CDs, whereas a digital bank or a small credit union may offer three to four times the national rate. Specific promotions, often with unique periods such as 13 or 21 months, instead of the more regular terms based on three, six, or 18 months or full-year increments, provide the best deals.

What does a Certificate of Deposit (CD) entail?

Creating a CD is almost the same as opening a conventional bank account. However, it is essential that you read the conditions before deciding which CD you want to open. When you sign the papers, you agree to certain conditions that may or may not be negotiable in the future.

What is the interest rate?

CDs are of many types. Certain types of CDs offer fixed interest and are helpful if you want a reliable and clear profit on your investment. It also shields in case the bank wants to adjust the rate later. A fixed return CD, meanwhile, also exists, although it could cost you if interest rates increase in the future. That said, both fixed rates and fixed return CDs help you safely grow your money.

What is the term?

The period is the time you choose to keep your funds invested to avoid incurring any penalties. When your CD has reached maturity and you can access your funds without penalty, the period ends on the "maturity date."

What is the principal amount required to activate your CD?

This is the sum you commit to invest when you activate the CD. While most CDs do not allow you to increase your investment amount, certain types of CDs are more flexible. They give you the option to increase or decrease your principal amount.

Also check for early withdrawal penalties (EWPs) and whether your CD will be automatically reissued. The bank or credit union that opens your CD decides both these conditions.

CDs or bank certificate savings offer you great returns. If you have some extra money in your savings account, it would be a good idea to invest it in a fixed deposit certificate. CDs offer guaranteed returns, which is something that you do not get with every investment instrument. IDFC FIRST Bank also offers fixed deposit certificates. Click here to know all about it

The interest rate is among the best in the country and there’s no early withdrawal penalty for senior citizens. Head over to this IDFC FIRST Bank page, where you can find all the details you will need to go through with the investment. Good luck!

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.