Certificate of deposits or CDs is a money market instrument which is offered by few banks and financial institutions which provides investors to enjoy the highest interest rates in comparison of any other saving accounts. It is a promissory note issued by the bank against funds deposited by an investor. It is a negotiable money market instrument and can’t get less than of 5 months and can’t get exceed more than 5 year. It needs you to deposit fund for very short period other than any saving accounts and within this short period of time, you will enjoy with the highest interest rates. However, there are few guidelines which apply with CDs and these guidelines get issued by the Reserve Bank of India amending from time to time. Your investment made on CDs is secured as they get insured by the bank with which you would like to make your investment and further are insured by the Federal Deposit Insurance Corporation which makes it completely safe.
These sorts of investments or CDs can’t get issued by every bank and authority has confined itself to very few banks of India and under few banks come Commercial Banks of India and few financial institutions like IFCI. The first criteria under which you can make your investment is that you need to make your deposit with the minimum amount of 1, 00,000 and that too by a single issuer. Under the issuer anyone can make their investment like companies, firms, trusts, banks and even NRIs but there are few very strict guidelines have been made in the context of NRIs. Once you are ready to make your investment by accepting the guidelines of the banks, you will receive a written declaration of your investment and in this declaration everything will be mentioned like your date of making your investment, date of maturity and other information too.
After the guidelines about making your investment under the criteria of CD, next comes the guidelines of maturity. You are not over only by making your investment and there are certain rules have been made in the section of maturity. Firstly, the period of maturity depends entirely on the type of investment you have done and your maturity period should be of at least 7 days and should not get exceed more than a year. However, the procedures of financial institutes differs from the banks and here, your maturity period should not get less than a year and should not cross three years. In order to make the customers to make their investment of long term, banks and institution impose high amount of penalty if amount gets withdrawn early. This penalty can be reduced in two options, either they will reduce the amount on overall interest rate or can be in procedure of reducing it in the interest that you earned in six months.
The Certificate of Deposits by RBI can be deposited by companies, banks, individuals, and trusts. Non-Residents can also deposit funds for CD. However, it should be on a non-repatriable basis, where they cannot bring funds or securities from abroad. The NRI opting for CD cannot use it in the secondary market.
Unlike the traditional deposits, the amount to deposit in CDs are often negotiable and to know more you can freely consult to banks which offers CDs. There are multiple of commercial banks and financial institution where you can make your investments.