What is a Bank CD?
Negotiable Certificate of Deposit (CD), referred to as CD, refers to the issuance of a time deposit certificate of a transferable nature issued by a bank to the holder. The voucher contains the issued amount and interest rate, and the date and method of repayment. If the deposit certificate has a term of more than one year, interest can be paid mid-term. In the New York currency market, units with a nominal deposit of US $ 1 million are usually issued with a term ranging from 30 days to 5 years or 7 years, and the term is usually 1-3 months. All payments will be made on the maturity date.
CD deposit slip
Right!
- Chinese name
- CD deposit slip
- Expiration date
- 1-3 months
- Interest rate on certificates of deposit
- It is fixed
- Time deposit
- It is registered and cannot be transferred
- Negotiable Certificate of Deposit (CD), referred to as CD, refers to the issuance of a time deposit certificate of a transferable nature issued by a bank to the holder. The voucher contains the issued amount and interest rate, and the date and method of repayment. If the deposit certificate has a term of more than one year, interest can be paid mid-term. In the New York currency market, units with a nominal deposit of US $ 1 million are usually issued with a term ranging from 30 days to 5 years or 7 years, and the term is usually 1-3 months. All payments will be made on the maturity date.
- Negotiable Certificate of Deposite
Referred to as time deposit certificate (CD), it refers to the issuance of time deposit certificates of transferable nature by banks to repay the holders. The voucher contains the issued amount and interest rate, and the date and method of repayment. If the deposit certificate has a term of more than one year, interest can be paid mid-term. In the New York currency market, units with a nominal deposit of US $ 1 million are usually issued with a term ranging from 30 days to 5 years or 7 years, and the term is usually 1-3 months. All payments will be made on the maturity date.
In essence, certificates of deposit are still fixed deposits by banks. But deposit certificates are different from deposits:
(1) Time deposits are registered and cannot be transferred and cannot be circulated in the financial market, while certificates of deposit are anonymous and can be transferred in the financial market.
(2) The amount of time deposits is not fixed, there are large and small, there are whole and zero, the amount of the deposit certificate is fixed, and it is a large integer, at least 100,000 US dollars, the transaction unit in the market is 1 million US dollars.
(3) Although the fixed deposit has a fixed term, it can be withdrawn in advance before it expires, but it loses the higher interest due; the deposit certificate can only be withdrawn at maturity and cannot be withdrawn in advance.
(4) The term of time deposit is mostly long-term; the term of time deposit is mostly short-term, ranging from 14 days to 1 year, and less than 1 year.
(5) The interest rates on time deposits are mostly fixed; the interest rates on certificates of deposit are fixed or floating. Even if the fixed interest rate is transferred on the secondary market, it must still be calculated at the prevailing market interest rate.
The negotiable time deposit certificate is a new deposit method that has appeared in the past 30 years. It was first issued by Citibank of New York in 1961. The background at that time was that market interest rates fluctuated up and down. Investors felt that it was convenient and flexible to store idle funds in the form of demand deposits, but there was no interest. Banks existed in the form of time deposits. Interest and bonds, commercial paper generated The interest ratio is also relatively low, and there is an upper limit constraint, time deposits cannot be transferred, and interest on losses is drawn in advance. So investors have shifted their investment direction from bank deposits to short-term bonds, commercial paper, and Treasury bills. For commercial banks, there are no loans without deposits. Faced with this situation, commercial banks found that their business methods were problematic and should be reformed. The traditional way of operating a commercial bank is simply to manage assets. When deposits increase, loans or other forms of investment are increased. If funds are insufficient, loans are retrieved or securities are sold. There is nothing to do with the debt. You can only leave it alone. When the customer comes to deposit, they accept it. If the customer does not come, they wait. In the face of new problems, commercial banks do not think that treating customers' deposits with this kind of stubborn approach can not adapt to the new situation and cannot just wait for deposits. If you always wait, you can only watch the social idle funds flow to the Treasury bills and other short-term bonds.
After careful consideration, New York Citibank has created a new method of transferable time deposit certificates, which has changed from waiting to take the initiative to compete with other investment methods in the currency market to increase deposits. Prior to issuing certificates of deposit, New York Citibank obtained the support of some major economists to ensure an active secondary market for certificates of deposit. Thanks to the help of some big businessmen, Citibank successfully issued its first deposit and withdrawal. Then, other banks followed suit immediately, and since then regular deposit certificates have become a short-term financing tool.
The transferable time deposit certificate issued by the bank is still a promissory note in the debt certificate in nature, and the bank promises to repay the principal and interest when it matures. When the investor who purchases the certificate of deposit needs funds, the certificate of deposit can be sold for cash. Deposit certificates combine the advantages of deposits with short-term securities, bringing convenience to banks and benefits to customers.
The interest rate on certificates of deposit is higher than the interest rate on Treasury bills with similar repayment periods. This difference is determined by the relatively large degree of credit risk of the certificate of deposit, and because the liquidity of the certificate of deposit is not as strong as that of the Treasury bills, the secondary market has less demand for certificates of deposit, and the income tax on the certificates of deposit is large. In the United States, the receipts of certificates of deposit are taxed at all levels of government. Now, the differences in the issuing banks also reflect the difference in interest rates on certificates of deposit. In the early stages of the development of the certificate market, the difference between certificates of deposit was relatively small, but gradually the buyers of certificates of deposit began to choose the certificates of deposit issued by different banks. high.
The interest rate on certificates of deposit is fixed. When the holder of the certificate of deposit sells the certificate of deposit, the actual market interest rate may not be consistent with the agreed interest rate on the certificate of deposit, may be higher than the agreed interest rate, or may be lower than the agreed interest rate. Those who purchase certificates of deposit on the secondary market are required to calculate at the prevailing interest rate at that time. Because if he does not buy the certificate of deposit on the secondary market, but buys the original certificate of deposit directly at the bank, he can only rely on the prevailing interest rate. When the certificate of deposit on the secondary market expires, the bank pays the interest at the agreed rate. For example, when the certificate of deposit is transferred, the market interest rate is 10%, and the certificate of deposit rate is 9%. The market interest rate is 1% higher than the negotiated rate of the certificate of deposit. The interest from the date of issue of the certificate of deposit to the date of maturity goes to the buyer. Because the market interest rate is higher than the agreed interest rate on the certificate of deposit, the seller of the certificate of deposit has to subtract the difference between the two interest rates of the buyer of the certificate of deposit from the interest he received. That is to say, if the market interest rate is higher than the negotiated deposit rate, the seller of the certificate of deposit has a certain loss; if the market interest rate is lower than the negotiated rate of deposit, the buyer of the certificate of deposit has to pay the difference between these two rates to the seller. At this time, the seller of certificates of deposit benefits. [1]