(THE GIST OF PIB) Certificate of Deposit

(SEPTEMBER-2025)

Issuance of certificates of deposit (CDs) by banks has fallen sharply in the last few months, pushing mutual funds to explore alternative money market instruments such as treasury bills and commercial papers to park funds.

It is a fixed-income financial tool that is governed by the Reserve Bank of India (RBI) and is issued in a dematerialized form.
It is a type of agreement made between the depositors and the banks, wherein the bank pays an interest on your investment.
It is a short-term investment that comes with fixed investment amounts and maturity tenure ranging between 1-3 years.
Features of CD:
A CD in India can be issued for a minimum deposit of Rs. 1 lakh or in subsequent multiples of it.

CDs are issued by the Scheduled Commercial Banks (SCBs) and All-India Financial Institutions.
The Cooperative Banks and the Regional Rural Banks (RRBs) are not eligible for issuing a CD.
It is issued to individuals, corporations, companies, and funds, among others.
CDs could also be issued to NRIs but on a non-repatriable basis only.

The maturity period of a CD can range between 7 days and 1 year when issued by commercial banks.
However, for other financial institutions, the maturity period ranges from 1 year to 3 years.
CDs are offered at discount rates or floating rates, depending on the banks’ requirements.
Interest Rates: A CD offers a higher interest rate than savings accounts or some other fixed-term financial products.
CDs in dematerialised form can be transferred through endorsement or delivery, similar to dematerialised securities. This feature enhances the liquidity and ease of transactions for CDs.
Unlike some other financial instruments, there is no lock-in period for a CD. This flexibility allows investors to access their funds or reinvest after the agreed-upon term without restrictions.
Since CDs do not have any lock-in period, CDs cannot be used as collateral, and banks can’t buy back their own CDs before maturity.