A Certificate of Deposit (CD) is a dematerialized fixed-income financial instrument controlled by the Reserve Bank of India (RBI). From the start, the payout amount is guaranteed. Any All-India Financial Institution or Scheduled Commercial Bank can issue a CD. They’re given out at a reduced price based on their face worth. A CD, like a fixed deposit (FD), is a written statement that you have placed money in a bank for a specific length of time and that the bank will pay you interest depending on the amount and term of your deposit.
Let us see what is a cd?
What is a CD : An Overview
- A Certificate of Deposit (CD) is a contract between a depositor and a bank in which a specified quantity of money is fixed for a set length of time.
- The CD, which is issued by the Federal Deposit Insurance Corporation (FDIC) and regulated by the Reserve Bank of India, is a promissory note on which the bank pays the interest.
- The Certificate of Deposit is issued in dematerialized form (electronic) and may be automatically renewed if the depositor does not select what to do with the matured amount within the grace period of seven days.
- It also prevents the holder from taking the funds on demand or paying a penalty if he or she does so. The principle amount, as well as any interest received, is available for withdrawal when the Certificate of Deposit expires.
Here are some of the most important characteristics of CDs, as well as how they relate to other financial factors:
- In India, CDs can be produced for a minimum deposit of one lakh rupees and in multiples of that amount.
- A CD can be issued by Scheduled Commercial Banks (SCBs) and All-India Financial Institutions. RRBs and cooperative banks are unable to issue CDs.
- SCBs’ CDs have a term span ranging from three months to a year.
- The term of CDs issued by financial organizations ranges from one to three years.
- CDs in dematerialized forms, like dematerialized securities, can be transferred by endorsement or delivery.
- A CD does not require a lock-in period.
- A CD cannot be used to secure a loan.
- Under the Income Tax Act, a certificate of deposit is completely taxable.
- A CD cannot be exchanged on the open market.
- Banks are not allowed to purchase back CDs before they expire.
The Benefits of Publishing a CD in India
There are several advantages to issuing a CD, which is why it is such a popular investment option. They are as follows:
Security: Due to market volatility, a certificate of deposit or FD will not eat up your capital. It’s a perfectly safe financial product that guarantees a fixed amount at maturity, just like regular insurance. There is no fear of losing the money you placed into your CD since it will continue to grow predictably. It’s a safe short- to medium-term investment.
High-Interest Rate: The majority of investors are drawn to CDs because of this benefit. They provide higher interest rates on lump-sum deposits, up to 7.8% than ordinary savings accounts, which pay roughly 4% average.
Flexibility: You have the option of receiving monthly, yearly, or lump sum payments on your CD when it matures. You can choose the period and amount of your investment and where to invest, but it must adhere to the bank’s guidelines. You may get the most out of the CD if you tailor it to your requirements.
Low to no maintenance fees: When it comes to the stock market, brokerage costs for the delivery, purchasing and selling of shares are always there. A CD normally does not come with any additional fees. With certain institutions, you only pay what you invest.
When Do Banks in India Issue a CD?
For any scheduled commercial bank, CDs might be high-risk liabilities. At certain times of the year, some banks are more likely to offer a CD than others. Two factors are:
- In the event of poor deposit growth and strong credit demand.
- When the market is experiencing stiff or tight liquidity circumstances, this indicates that cash is being held in non-liquid assets.
NRIs who have made a CD investment is not allowed to return to their home country once the money has matured.
In the short to medium term, issuing a certificate of deposit is a safe method to invest and where to invest. Hopefully, this CD tutorial has demonstrated the eligibility, features, and benefits of fixed income products like CDs, as well as why you should invest in them to secure your financial future.
You will, however, need to create a Demat account before you can proceed with your CD. A dematerialized account is referred to as a Demat account. To store dematerialized assets like a CD, you’ll need an online Demat account. With a few simple steps, you may start a Demat account
and be well on your way to purchasing your first CD.This article describes the complete aspect of what is cd and its features.