8463683689_baa33ca431What is the Money Market? An Introduction – Part 2 of 2

Certificate of deposit

Most of the confusion surrounding certificate of deposit comes from the fact that its called by various names in other countries. For example, in

  • India it goes by the name of – Fixed deposit
  • UK – Bond
  • Australia, New Zealand – Term deposit
  • USA – Certificate of deposit/ Time deposit.

Certificate of deposit is basically a “certificate” issued by banks. The certificate among other things mentions the interest which the bank pays on the deposit and the time period after which the deposit can be withdrawn (premature withdrawal usually warrants a penalty).

A typical transaction involves an individual going to the bank to deposit his money for a fixed period of time (say 3 years) at a fixed interest rate (say 1.450% APY – Annual Percentage Yield) and the bank in return gives him a certificate of deposit with all the details. More »