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Post Date : March 28, 2025
Disclaimer: Investments in the securities market are subject to market risks. This content is for educational purposes only and does not constitute financial advice.
A Certificate of Deposit (CD) is a fixed-income financial instrument governed by the Reserve Bank of India (RBI) and issued in a dematerialized form. It represents an agreement between depositors and banks, where the bank pays interest on the investment.
A CD is a short-term investment with fixed amounts and maturity periods ranging from 1 to 3 years. Below are the key features and the process to purchase a Certificate of Deposit.
Here are some key characteristics of CDs and how they compare to other financial instruments:
| Attribute | Details |
| Definition | A CD is a financial product offered by banks and credit unions that provides an interest rate premium in exchange for a fixed-term deposit. |
| Interest Rates | CD interest rates are fixed, providing predictable returns. The bank cannot change the rate during the tenure, ensuring a guaranteed return. |
| Minimum Deposit | Rs. 1,00,000 |
| Tenure | Typically ranges from 3 months to 3 years, depending on the issuer. The funds become accessible without penalty upon maturity. |
| Eligibility | Issued by SCBs and selected financial institutions as per RBI regulations. Available to individuals, corporations, companies, and funds. CDs can also be issued to NRIs but only on a non-repatriable basis. |
| Taxation | Fully taxable under the Income Tax Act. |
| Loans Against CDs | Generally, banks do not provide loans against CDs unless explicitly permitted by the RBI. Issuers may repurchase CDs before maturity at prevailing market rates. Investors can choose to accept or reject the buyback offer. |
The process of buying and selling CDs is similar to that of shares. Here are the steps:
| Criteria | Fixed Deposit (FD) | Certificate of Deposit (CD) |
| Minimum Investment | Rs. 1,000 | Rs. 1,00,000 |
| Returns | 3.5% – 8% | Generally higher if issued by organizations compared to commercial banks |
| Tenure | Up to 10 years | 1 to 3 years |
| Collateral | Loans can be availed against FD | Loans against CDs are generally not allowed |
Q1. Can funds be transferred between an online CD and other bank accounts? Yes. During the grace period, you can transfer funds between your online CD and other accounts. Investors are given a specified period to make a one-time deposit, withdrawal, or renewal of their online CD.
Q2. Can I withdraw funds from my online CD? Yes, you can withdraw funds during the grace period without any penalty. However, an early withdrawal before maturity may attract penalties.
Q3. Does my online CD automatically renew upon maturity?
After a CD matures, investors have a grace period to withdraw or transfer funds. Some banks may automatically renew CDs at prevailing interest rates.
Q4. What happens when a CD matures? After maturity, investors can either withdraw their funds or reinvest them in a new CD. Banks and financial institutions may automatically renew CDs unless instructed otherwise.
Q5. Who issues Certificates of Deposit? CDs are issued by Scheduled Commercial Banks (excluding Regional Rural Banks and Local Area Banks) and All-India Financial Institutions permitted by the RBI.
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