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Certificate of Deposit

A certificate of Deposit is the fixed income financial tool that is governed by the Certificate of Deposit RBI and issued in dematerialized form. Here the withdrawal amount is guaranteed from the very beginning. It could be issued by any Indian financial institution or commercial bank. A certificate of Deposit in India is issued at a discount given at face value. Similar to an FD, the CD aims to denote in writing that you have deposited money in the bank for a fixed period, and the bank would pay you interest - based on the amount and the period of your Deposit.

Attributes of Certificate of Deposit

Now that you know Certificate of Deposit Meaning, it's time to know about different attributes of it. Opening the certificate of Deposit is similar to the procedure of opening an FD account. The major difference is the features of the two; mentioned below are the components of the Certificate of Deposit:

Certificate of Deposit Definition:

The certificate of Deposit is the product that is offered by banks and credit unions that give an interest rate premium in exchange for the customer agreeing to lock in an amount for a predetermined period of time.

Certificate of Deposit Interest Rates:

Locked rates are the positive attributes of CDs, and they will provide a clear and predictable return to the Deposit over a time period. The bank will not, even later on - change the rate, making it a guaranteed return. 

Certificate of Deposit Minimum Amount:

With the exception of some specialty CDs, you can agree upon a principal amount to open the CD. The minimum amount of Deposit begins at Rs. 1,00,000.

Certificate of Deposit Tenure:

This is the length of the period for the CD; for instance, it could be six months to years. The tenure ends on the date of the maturity; when the CD has matured completely, you will be able to withdraw the funds without a penalty fee.

Eligibility Criteria:

CDs are issued by scheduled commercial banks and selected financial institutions in the country as allowed by RBI within the limit. Certificates of Deposits are issued to individuals, corporations, companies, and funds, among others. Certificate of Deposits could also be issued to NRIs but on a non-repatriable basis only. It is crucial to note that banks and financial institutions can't provide loans against CDs. Also, banks would not buy their own CDs before the latter's maturity. The aforementioned norms would be relaxed by the RBI for a particular period of time. It is crucial to note that banks have to maintain the statutory liquidity ratio and cash reserve ratio on the price of a Certificate of Deposit.

Taxes:

Certificates of deposits are completely fully taxable in the hands of investors under the Income Tax Act.

Opportunity for Loans:

A depositor can get loans against CDs, except for the permitted explicitly by the RBI. The issuer is given to buy back CDs before maturity at the prevailing market price. The investors could opt for accepting or rejecting the CDs purchased back offer as per wants.

 

Access to fixed deposits
of various banks
Invest without opening
a new bank account
Avail high interest rates
of up to 6.5%
OPEN FD ONLINE

How to Buy a Certificate of Deposit

The process of buying and selling CDs is similar to that of buying and selling shares, and the steps are mentioned below:

Step 1: The seller and the buyer need to agree on the price and the quality of the transaction.

Step 2: The seller will authorize its depository participants through the delivery instructions slip.

Step 3: The slip will be inclusive of the instructions to debit the seller's account and transfer the CD to the account of the buyer.

Step 4: In the case of any confusion, you can also get assistance from a professional.

Benefits of a Certificate of Deposit

  • A certificate of the deposit does not consume capital for market volatility, and it is a completely secure financial instrument with assured amounts at the time of maturity. The money that is deposited would continue to predict an increase. It also offers a lot of larger interest rates on a lump sum investment.
  • CDs offer you monthly payouts, annual payouts, or also a lump sum payout during withdrawal at maturity. You could choose the tenure and price you want to be invested for, and though there are certain parameters set by the bank, it will help to tailor the investment instruments to your needs.
  • There are usually no additional costs or fees that are associated with a CD, and you only pay your investment.

Comparison of FD rates

Name
Tenure
Highest Interest Rates
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2
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5

FAQs

Q1. Is it possible to move funds between my Online CD and other bank accounts?

Yes. During the grace period, you can make a one-time transfer between your Online CD and other accounts. Investors are granted a specified amount of time to transfer/one-time Deposit, withdraw, or renew their Online CD during the grace period. The grace period is over when you complete the purchase or issue instructions to change the term.

Q2. Will I be able to withdraw the funds from my Online CD?

Yes, you can withdraw during the grace period, but only once (without any withdrawal penalty). You would be charged with an early withdrawal penalty if you withdraw before the maturity time, depending on the duration of the Online CD.

Q3. Does my Online CD automatically renew when it reaches its expiration date?

After an Online CD matures, you have a grace period during which you can transfer or withdraw the funds. If you would do nothing, the bank may automatically renew the Online CD, but at a different rate of interest for the next term. It's possible that the renewal term will be the same as the original.

Q4. When my Online CD reaches its expiration date, will I be notified?

When an Online CD matures, banks, credit unions, and financial institutions usually notify the investors. It is, nevertheless, requested that you be vigilant and diligent. If you don't transfer or withdraw the money within a certain grace period following the maturity date, the CD may be automatically renewed, i.e., rolled over to a new CD. The new CD's rates and maturity date may differ from the old CD. Furthermore, the deadline for depositing the funds into a Savings Account may be missed.

Q5. What happens if I need to close my account before the end of the term?

You can end your account either online or by visiting or calling your bank/financial institution and advising them of your decision. By entering into the website of the relevant institution, investors can keep track of their accounts. Certain information will be required during the conversation. Even if you visit them, you may be required to fill out a form and complete formalities such as providing personal information (account information, phone number, etc.) before they will close. Early closure/withdrawal will result in a penalty.

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