Certificate of Deposit

A certificate of deposit is an RBI governed investment which ensures investors get a particular rate of interest on thrift investment at the time of maturity period. Read more about certificate of deposit.

5 mins
05 May 2023

A certificate of deposit (CD) is a popular investment vehicle intended to provide returns on the amount invested for a fixed term. Governed by the Reserve Bank of India (RBI), investors can buy the CD from financial institutions as well as different commercial banks. Working similarly to Fixed Deposit (FD), a certificate of deposit gives an underwriting that the deposited amount will get repaid to depositors with interest on completion of the term.

What is a certificate of deposit?

Certificate of deposit (CD) is basically a fixed-income financial tool issued in dematerialised form and administered by the RBI. It is a savings account, which holds a certain amount of funds for a fixed period, like 6 months, 1 year, or 5 years, and in exchange, the issuing financial institution pays interest.

When an individual redeems his/her respective CD, they will receive the originally invested money along with accumulated interest. The certificates of deposit are considered one of the safest options for savings. In this product, the amount of withdrawal remains guaranteed right from the beginning.

In India, CDs are provided at a discount at face value. Just like a fixed deposit certificate, a certificate of deposit (CD) exhibits in writing that the investor has deposited money in their account for a fixed period. Based on the amount and tenure of deposit, the financial institution returns the deposited sum plus interest.

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.


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.

Features of a Certificate of Deposit?

Before investing in a certificate of deposit (CD), it is important for the investor to be aware of this savings instrument. Mentioned below are the significant features of certificates of deposit:

  • Availability: The Reserve Bank of India (RBI) has permitted several financial institutions to issue the certificates of deposits. They comprise scheduled commercial banks, regional rural banks, All India Financial Institutions (AIFIs), etc.

  • Tenure: When it comes to a certificate of deposit, the tenure issued differs extensively among different financial institutions. This flexibility enables investors to choose the best instrument for them.

  • Interest rate: The financial institutions and credit authorities offering a certificate of deposit provides it on a floating rate basis.

  • Issuance: According to the guidelines of the Reserve Bank of India (RBI), several accredited financial institutions can issue CDs to persons.

  • Minimum investment: In India, the certificate of deposit minimum amount is Rs.1 lakh.

  • Eligibility: Every small-scale and large-scale business, individuals, corporations, etc. can make their investment in certificates of deposit. However, NRI individuals can get CDs on a non-repatriable basis.

  • Transferability: In case of dematerialised certificates, they are transferred either by endorsement or delivery. Whereas the certificates in Demat forms are transferred according to the terms and conditions of Demat securities.

  • Lock-in-period: Unlike fixed deposits, authorised financial institutions cannot provide credit facilities to depositors against certificates of deposits since this type of money market instrument does not come with any lock-in period. The investment amount cannot be recovered before the completion of the predetermined maturity tenure.

A certificate of deposit (CD) is an investment tool offered by financial institutions in which investors have to deposit their funds for a specified term to earn premium interest rates. Apart from saving money, CDs offer guaranteed higher return to investors on completion of the term.

Certificate of deposit FAQs

What is a certificate of deposit?

The certificate of deposit (CD) is a fixed-deposit instrument that serves an additional mode of investment. It comes with flexibility in terms of tenure and helps individuals grow their funds securely.

What is the eligibility for issuance of a certificate of deposit?

According to the accreditation of the Reserve Bank of India (RBI), regional rural banks (RRBs), scheduled commercial banks, and All India Financial Institutions (AIFIs) are eligible to issue a certificate of deposit.

What are the advantages and limitations of investing in CDs?

The advantages of investing in a certificate of deposit (CD) are as follows:

  • Secure investment option
  • Fixed-rate of interest
  • Short-term investment option
  • Greater interest rate than the savings bank account

The disadvantages of investing in certificate of deposit (CD) are as follows:

  • Limited liquidity
  • Risk of inflation
Who should invest in a certificate of deposit?

Investors planning to invest a lump sum fund for a short tenure with the least possible risk can opt for a certificate of deposit.

How to calculate income earned from a certificate of deposit?

An individual can compute the total interest rate, amount at maturity, and see the growth chart by using the online certificate of deposit calculator for free.

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