Certificate Of Deposit (CD): Meaning, Features & Advantages
To meet the financial needs, our nation’s government needs to have money. For this, the government of India needs to approach the common public to raise funds. The money is raised by making tempting offers that are both long-term and short-term. But very few investment options for the money market for short-term investors. Such an option for the short term is a Certificate of Deposit. A certificate of Deposit is also called a CD. Here the role of retail is little. It is due to the need for more knowledge about this space. One can check out the post office FD rate. To know more, one can read the article further.
What is meant by a Certificate of Deposit?
The CD is an agreement. It is between the bank and the depositor. The deal is done for a given period. It has a certain amount of money, and the bank needs to pay interest. It can be redeemed at the time of maturity of that investment.
CDs get issued with the help of dematerialised forms. A money agency like a bank issues this promissory note. Federal Deposit Insurance Corporation, i.e., FDIC, is the one who insures it. The RBI, i.e., the Reserve Bank of India, regulates it. The rules are laid by RBI. Post office FD rates are tempting, and one can check them out.
During the time of maturity, the depositor gets 7 days to decide the amount of maturity. The maturity amount is again invested if one fails to withdraw it in 7 days. But one can start the amount after 7 days by paying the penalty. One can check out post office fixed Deposit if they are willing. However, the actual investment cannot be redeemed in any way. In 1989 the certificate of Deposit first came into use. This was done to increase the size of the money market.
What are a CD and an FD?
CD and FD are not very distinct. They are almost the same. Fixed deposits are known as time deposits or CDs by many banks. The term period is the same. They also have basic needs for deposits and have high-interest rates. The only contrast is that the CDs can be freely negotiated, but FDs cannot be. One can check out the post office FD rate.
The Certificate of Deposit: Features
- Eligibility:
RBI chooses a few selective financial agents and banks for issuing CDs. They establish quite specific guidelines. Banks issue CDs to pension funds, insurance, trusts, mutual funds, and individuals.
- Maturity Period:
Banks issue a CD for tenure ranging between 7 days to 1 year. But financial agencies give a CD for some other date of maturity. The CD can be from 1 year up to 3 years.
- Minimum Investment:
The CDs get issued in multiples of Rs. 1 lakh. Also, Rs. 1 lakh is the smallest size for the investment.
- Transferability:
Electronic credit of Deposit is transferable. It can be done with the help of delivery or endorsement. However, Demat account certificates can be transferred based on the rules of the Demat securities.
- A loan is taken against CD:
The certificate of the Deposit does not have any lock-in period. It is the reason banks do not grant loans to them. The bank cannot repurchase CDs before maturity. Post office fixed deposit rates can be checked out by one.
- Discount available on CD:
CDs are issued at a discount on the face value. Based on the flotation rate, banks and financial institutions gives the certificate of Deposit. The floating rate is set based on market research. Post office FD rate can be checked out by one who wants to invest.
Advantages of Certificate of Deposit in India
- Security:
The CDs or FDs, even during market volatility, do not eat up any capital. The money invested is safe. Just like traditional insurance, it has an assured amount during maturity. Without any risk of suffering a loss, the money being put given in the CD keeps growing at given rates. One can check out the Post Office FD rate.
- High-interest rate:
A lot of investors get attracted towards CD due to the number of benefits it provides. The interest rate is relatively high. It can even go up to 7.8% on a massive deposit than the traditional savings account with almost 4%.
- Flexibility:
One can choose monthly or annual payouts. They can also withdraw a large amount on the maturity of the CD. One can decide the price and time of the investment. But it has to be based on certain parameters. These are usually set by the bank. The CD is just apt for one, to meet their needs. Post office FD rates are quite great for someone interested.
- Very less maintenance cost:
In the market, there are several fees charged by brokers. The costs usually include selling the shares, buying and delivery. Mostly no extra costs are merged with the certificate of Deposit. With some banks, one has to pay only what they invest.
Conclusion
Is someone willing to invest for the short term? Then certificate of Deposit is the answer. Hopefully, the above guide was helpful for the ones in need. It has let people know the meaning, the different features and advantages of CDs. One can now get that they should invest in a CD to have a secure future. A Demat account needs to be opened before starting any process. Such an online account is needed to hold securities, just like a CD. One can check out the post office FD rate if they want. Does anyone need a financial option? Then “Piramal Finance” is a good personal loan/financing option for buyers.