Certificate of Deposit

Certificates of Deposits are similar to savings accounts but a Bank will issue a certificate for the amount of deposit in the bank. One needs to deposit money into the bank and get the certificate of deposit for the money thus saved. The interest rate of the money in CDs are higher than that of the interest rate for savings accounts.

The difference between savings account and Certificate of Deposit is that the money saved in CDs cannot be withdrawn until the specific period is elapsed. The CDs have some fixed term may be three months, or six months to several years. The money deposited in CDs cannot be withdrawn until the maturity period is reached, otherwise the bank will issue a penalty if the money is withdrawn before the maturity time.

CD rates are normally fixed. The CDs require fixed deposit amount and the banks sometimes offer higher interest rates for higher amounts of deposits.   But it varies from bank to bank. 

The total amount including the principal and interest will be paid at the end of maturity period. But most of the banks and financial institutions offer to deposit the interest periodically into the savings account. Normally the private banks and financial institutions offer much higher interest rates on CDs than public sector banks. Some banks offer to renewal of the CDs after maturity period. So we can extend the CD for another fixed term without withdrawing the money.

 The interest rates depend on the period of deposit.  Some general guidelines for the interest for a typical bank are as follow:

• Higher amount of deposit normally receives a higher interest rate.  But this is not completely true for all the banks; it varies from bank to bank. Some banks offer same interest for any amount of deposit.
• A CD for a longer maturity period receives a higher interest rate. Almost all the banks follow this rule.
• The interest rates also depend on the type of financial institute. A bank or an institution having good profits may offer higher interest rates.
•  Business CD deposits generally get lesser interest rate than personal CD deposits.

If the payment day (maturity date) is a holiday, the total amount is paid by the banks on the next working day.