Banking Exam Question - What is Certificate of Deposit (CD) in Banks & Financial Institution? Explain

What is Certificate of Deposit (CD) in Banks & Financial Institutions? Explain

One type of fixed or time deposit in use in present day is the certificate of deposit (CD). Certificate of deposits are evidences that a person or corporation has deposited a specified sum of money in a bank. Such depositor cannot withdraw money at least for 30 days. The bank sales such certificate in fixed denominations, for example, Rs. 10000, Rs. 50000 etc. such certificate may be negotiable or non-negotiable. The main difference between these two is that the original depositor can sell the negotiable CD before maturity. On the other hand, non-negotiable CD cannot be sold. Only the original depositor can convert that into cash.

The main difference between CD and time deposit is that the amount to be deposited in time deposit is not stipulated by the bank. The customer can deposit the amount as he wishes, but cannot withdraw until it matures. On the other hand, it is compulsory to deposit the amount stipulated by the bank in case of CD.

The fixed deposit in Nepal is of 3 months, 6 months, 1 year and 2 years and above. No chequebook and passbook is issued in this account. Only fixed deposit receipt is given as an evidence of deposit.