What is Certificate of Deposit & How to Buy in India: Meaning & Minimum Amount

What is a Certificate of Deposit?

A certificate of deposit (CD) is a form of savings product in which interest is accumulated on a single amount of money for a defined period. The Certificate of Deposit of the RBI governs this dematerialized fixed-income financial product. In this instance, the withdrawal sum is promised upfront. Any commercial bank or financial institution in India is able to provide it.

Savings accounts and CDs are not the same because a CD requires that the money remains in it for the entire term to prevent fees and interest loss. The purpose of a CD is to express in writing—much like an FD—that you have made a deposit of money with a bank for a specific amount of time, for which you will get interest based on the sum and the length of the warranty.

Characteristics of a Certificate of Deposit

It's time to learn more about the characteristics of a certificate of deposit now that you understand what it means. The only significant difference between opening a certificate of deposit and a fixed deposit account is the features of each type of account. 

In fact, setting up a CD is identical to setting up any regular bank deposit account. The distinction lies in what you consent to while signing up for one of these accounts. The following are some of the characteristics of the Certificate of Deposit:

Interest rates on CDs

One benefit of CDs is their fixed interest rates, which will give the depositor a steady and predictable return over time. The rate is assured to remain the same, even in the future. Therefore, there is no risk involved.

Eligibility Requirements for CDs

Scheduled commercial banks and a few other entities in the nation offer CDs as long as the RBI permits it and there is a cap. Certificates of Deposit are granted to a variety of parties, including people, corporations, businesses, and funds.  

It is essential to recognize that banks and other financial institutions cannot offer loans secured by CDs. Additionally, banks would only purchase their own CDs after the latter's maturity.

For non-repatriable purposes exclusively, Certificates of Deposits may also be offered to NRIs. It is important to remember that banks must maintain the required cash reserve and liquidity ratios on the cost of a Certificate of Deposit.

Minimum Amount for CDs

The smallest deposit amount is Rs. 100,000. You can decide on a principal amount before opening the CD, with a few exceptions. 

CD Tenure

The duration of the CD will be determined by its tenure. The tenure could be anywhere from 6 months and several years. The tenure ends on the maturity date; you can withdraw the money without penalties after the CD has fully matured.

Possibility of Loans Against CDs

Except where expressly prohibited by the RBI, a depositor may get loans against CDs. Before the CDs mature, the issuer can purchase them back at the going market rate. Investors could accept or reject the offer to buy back CDs depending on their preferences.

Taxes on CDs

Under the Income Tax Act, investors' ownership of certificates of deposits is totally and entirely taxable.

Key Information Regarding Certificates of Deposit

  • Compared to stocks and bonds, CDs offer a relatively smaller potential for growth but a non-volatile, fixed rate of return. For this reason, they are considered a safer form of investment.
  • Shopping around can result in considerable savings because the best CD rates on the national market are often 3 to 5 times higher than the average for every term.
  • In exchange for keeping the money on deposit for a set amount of time, top-paying certificates of deposit (CDs) offer higher interest rates than those provided by the top savings and money market accounts.
  • Various CD options are available from almost every bank, credit union, and brokerage.
  • When you start a CD, you commit to a term of duration, but there are ways to end it sooner if something urgent arises or your plans evolve.

Benefits of Certificates of Deposit

Following are some of the advantages of using Certificates of Deposit as investment instruments: 

Greater rate of interest than a savings account.

Certificates of Deposit provide interest at a predetermined fixed rate, which is higher than the interest rates on savings accounts.

Investment option for the short term.

Since CDs have a short maturity term, the deposited money will only remain non-retrievable for a brief time.

Fixed-rate of interest.

Investors can forecast their returns with CDs because they are given at a fixed interest rate that does not change throughout the investment.

Higher rewards for longer terms of maturity.

Longer-term investing produces better returns, ensuring flexibility.

Flexible investment.

Certificates of Deposit are ideal for investors with various investment objectives and income levels, thanks to their features and advantages.

Grace period.

The depositor may use the matured money during the grace period to plan future investments. The grace period typically lasts seven days after the maturity term has passed.

Numerous options.

The Reserve Bank of India has authorized many commercial banks and financial institutions to offer CDs. Investors can thus choose the one that best serves their specific investment goals.

Steps to Buy a Certificate of Deposit

The steps involved in purchasing and selling CDs are listed below. The process is identical to that of buying and selling shares.

Step 1: The seller and the buyer must understand the transaction's terms, including its price and level of quality.

Step 2: Using the delivery instructions slip, the supplier will allow its depository participants.

Step 3: The slip will also include instructions on transferring the CD from the seller's account to the buyer's account.

Step 4: You can also seek help from a professional if you still need clarification.


By now, it should be clear that certificates of deposit are trustworthy and secure financial products. You have all the fundamental knowledge you'd require to decide whether to invest in CDs.

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