Certificate of Deposit: An Overview
The Certificate of Deposit (CD) is an agreement between the depositor and the bank where a predetermined amount of money is fixed for a period and the bank pays interest on it. It is a money market instrument issued against some funds for a specific tenure, a promissory note by the bank and insured by the Federal Deposit Insurance Corporation (FDIC).
The Reserve Bank of India (RBI) issues guidelines for the CD from time to time. The Certificate of Deposit is issued in dematerialised form i.e. issued electronically and may automatically be renewed if the depositor fails to decide what to do with the matured amount during the grace period of 7 days. It also restricts the holder from withdrawing the amount on demand or pay a penalty, otherwise. When the Certificate of Deposit matures, the principal amount along with the interest earned is available for withdrawal.