When you get a Certificate Of Deposit, it means that you get a financial document that is issued by a bank to you to indicate that you have deposited a sum of money for a specific time period. It also shows that you have deposited the money at some interest. You can say that it is a saving certificate which has a fixed due date, and a fixed amount of interest certificate of deposit rates. It can be issued in the type of investment. What it does is that it fixes the amount of time during which you cannot access the investment you have done, until the due date of the investment.
A deposit certificate is issued for a certain amount of time and is like a promissory note. It restricts the holders from withdrawing the payment they have done on demand. If you have to give such certificate to someone, you can even do this electronically, as these documents are generally issues via electronic methods. These get automatically renewed upon the maturity of the investment time period.
Certificate Of Deposit Definition
Definition of the word “Certificate of Deposit”
The simplest definition would be – the certificate that has been issued by a bank, for the deposited money in an investment, for a specified length of time. This investment is done for some interest rate, and the time period is specified. This is called a certificate of deposit.
If you like to save your money, investing seems a betters idea because they offer a higher return than other savings account. The only downside is the inability to access the money if needed. There is no risk involved when you save your money by using an investment.
Certificate Of Deposit Example
The Certificate of deposit is issued to a person when he deposits a certain amount of money for a specified length of time. A deposit is one of the savings tools that can offer higher return rates on your money. This is why these certificates of deposits important. They are like receipts, which is issued to us by the depository institution.
What is the importance of certificate of deposit?
- It acts as the receipt of the deposit we made.
- This certificate acts as evidence of the deposit.
- The certificate specifies the length of time from the bank or company
- The rate of interest is also specified through the certificate
The details that a certificate of deposit must include in it –
- The amount that has been deposited
- The name of the depositor
- Company’s name
- The terms on which the deposit has been made
- Other relevant data about the depositor
- The time period for which the deposit has been made
- The policy of the bank/company
In most cases, people deposit their funds for the period of one to five years, and even with changes in the interest rates, the rates stay the same for that specific deposit. No doubt that the certificate acts as an excellent means which records the investments of business or individuals.
Negotiable Certificate Of Deposit
How a certificate of deposit works?
A CD (certificate of deposit) is a low-risk instrument that serves as a proof of your investment in any firm. It indicates that the investor has deposited a sum of money of some time in a company for investment purpose or even as a loan. You can even purchase a CD from a broker for your investment in a firm. These CDs are insured by Federal Deposit Insurance Corp. for up to $250,000.
There are bothe types of certificate of deposit – Negotiable and Non-Negotiable.
The terms are based on the company’s policies and in some cases, the investor can put up his own clauses.
Why does a certificate of deposit matters?
It ensures the investor that there is no risk of losing his money to the firm. The inventor who is looking to save his money will not be able to retrieve his funds until his investments reach the maturity, that is why the deposit is a risk-free investment.
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Conclusion
There might be a few disadvantages of the certificates too like the investor cannot redeem his amount until the maturity date, this, in fact, is a plus point of the certificate. It ensures a risk-free investment and also locks the investment rate so that there is no confusion. The other downside is that there is no exempt from state and local taxes.
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