hort Notes – Certificate of Deposit (CD)
Definition:
- A short-term, fixed-income financial instrument issued by banks and financial institutions, regulated by RBI.
Key Features:
- Issued in dematerialized form; easily transferable like other securities.
- Offers higher interest rates than savings accounts or other fixed deposits.
- No lock-in period; funds accessible after maturity without restrictions.
- Cannot be used as collateral or bought back before maturity by banks.
- Fully taxable under the Income Tax Act.
Eligibility:
- Issued by Scheduled Commercial Banks (SCBs) and All-India Financial Institutions.
- Cooperative banks and Regional Rural Banks (RRBs) are not eligible.
- Available to individuals, companies, corporations, funds, etc.
- NRIs can invest on a non-repatriable basis.
Investment Details:
- Minimum deposit: ₹1 lakh (and multiples of ₹1 lakh).
- Maturity:
➤ Commercial banks → 7 days to 1 year.
➤ Financial institutions → 1 year to 3 years. - Can be issued at discount or floating rates.
Other Conditions:
- Banks must maintain statutory liquidity and cash reserve ratios on CD amounts.
- Not publicly tradable.