A Certificate of Deposit (CD) is a short-term, low-risk investment instrument regulated by the Reserve Bank of India (RBI). It represents an agreement between an investor and a bank, where the investor deposits a fixed amount for a set duration — usually between 6 months and 3 years — and earns a predetermined interest rate.
CDs are typically issued in digital format and cater to individuals or institutions looking for guaranteed, fixed returns within a specified period. Since the interest rate is locked in at the time of investment, CDs offer predictability and stability.
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Attributes of Certificate of Deposit
Certificate of Deposit Definition |
The product that banks and credit unions offer that offers an interest rate premium in exchange for the customer's agreement to lock in a sum for a defined length of time is known as a certificate of Deposit. |
Certificate of Deposit Interest Rates |
The advantages of CDs are their locked rates, which will give the deposit a clear and predictable return over time. It is a guaranteed return because the bank won't modify the rate, not even later. |
Certificate of Deposit Minimum Amount |
With a few exceptions, you can decide on a principal amount before opening the CD. The smallest deposit amount is Rs. 100,000. |
Certificate of Deposit Tenure |
This is the duration of the CD; it may range from six months to many years. The tenure ends on the maturity date; after the CD has fully matured, you can withdraw the money without incurring any penalties. |
Eligibility Criteria |
Within the limits set by the RBI, CDs are issued by scheduled commercial banks and specified financial institutions in the country. Individuals, corporations, companies, and funds, among others, receive Certificates of Deposit. NRIs might also be issued Certificates of Deposit, but only on a non-repatriable basis. It is critical to know that banks and financial organisations cannot make loans secured by CDs. Banks would also not purchase their own CDs before the maturity date. The RBI will relax the aforementioned rules for a set length of time. It is critical to note that banks must adhere to the statutory liquidity ratio and cash reserve ratio when calculating 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 |
Except if expressly prohibited by the RBI, a depositor can obtain loans against CDs. The issuer is required to purchase back CDs prior to maturity at the current market price. Investors could accept or reject the CDs purchased back offer based on their preferences. |
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