IFG  EXPLAINS' Certificate Of Deposit - CD

A certificate of deposit is a promissory note issued by a bank. It is a time deposit that restricts holders from withdrawing funds on demand. Although it is still possible to withdraw the money, this action will often incur a penalty.

For example, let's say that you purchase a $10,000 CD with an interest rate of 5% compounded annually and a term of one year. At year's end, the CD will have grown to $10,500 ($10,000 * 1.05).

CD,s of less than $100,000 are called "small CD,s"; CD,s for more than $100,000 are called "large CD,s" or "jumbo CD,s". Almost all large CD,s, as well as some small CD's, are negotiable.

'Certificate Of Deposit - CD'

A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CD's are generally issued by commercial banks and are insured by the FDIC. The term of a CD generally ranges from one month to five years.