CD’s are become the financial instrument issued by bank’s at
higher interest rate than the fixed deposits. To induce corporates
to invest money with them in order to meet a lending need.
Certificate of deposit bears:
- A specified interest rate
- A maturity date
- Can be issued in any denomination
- These will have issued generally in commercial banks
- It ranges from one month to five years.
Advantages: -
- This is a most convenient way for depositors to invest their
money for short term
- They can enable their short term surplus to earn high
returns
- The holder can resell their certificate too.
- It is an ideal instrument for the bank with short term surplus
found to invest at attractive.
Dis advantages: -
- Banks will have corporate relationships from whom they can
borrow
- While borrow bank will issue CD’s to corporates
- They will give high interest rate to the corporates to make
money