The
Certificates of Deposit are also called CD in the United States. These monetary products act as a form of time deposit and are normally brought out for public usage by financial institutions like the banks, credit unions and thrift institutions.
The certificates of deposit are like the savings accounts by virtue of being fully insured and free of any form of risk. The certificates of deposit are insured by the Federal Deposit Insurance Corporation and the National Credit Union Administration in the United States.
While the National Credit Union Administration is responsible for the certificates of deposit issued through the various credit unions, the Federal Deposit Insurance Corporation are in charge of insuring those issued through the banks.
The certificates of deposit are different from the savings accounts in the sense that they have a stipulated period of maturity. The interest rates of the certificates of deposit are normally fixed, which is not the case with the savings accounts.
The holders of
certificates of deposit normally retain ownership till the point of maturity, when the sum could be drawn back along with the interest. The interest rates of the certificates of deposit are directly proportional to the principal and the term period.
The interest rates of the certificates of deposit are inversely proportional to the stature of the bank that issues them. It has been observed that the personal certificates of deposit accounts have higher rates of interest compared to the business certificates of deposit accounts.
There are certain
certificates of deposit that are not insured like the callable certificates of deposit and the brokered certificates of deposit. The callable certificates of deposit are like the traditional certificates of deposit with the sole exception being the bank's right to purchase the particular money market instrument. The difference between the conventional certificates of deposit and the brokered certificates of deposit lies in the fact that the latter are owned by a group of investors who are not related.