A certificate of deposit (CD) is a financial instrument that allows one to earn interest on a fixed amount of money that a person deposits with a bank for a set period of time:
- How it works: When a person leave money in the bank for a set period, such as one year, and in exchange, the bank pays the interest.
- Interest rates: CDs generally offer higher interest rates than savings accounts. The interest rate is fixed, but some institutions may offer CDs with variable rates.
- Safety: CDs are considered as a safest option for savings.
- Liquidity: Withdrawing money from a CD before the term attracts penalty.
- Maturity: When the term ends, you receive your original deposit plus the interest.
In India, CDs are issued by scheduled commercial banks, regional rural banks, small finance banks, and All India Financial Institutions. They are governed by the Reserve Bank of India (RBI) and are issued in dematerialized form.
