Certificate of deposits are those deposits which are issued by banks and it is like a promissory note. The term of a CD generally ranges from one month to five years. Following are the important features of certificate of deposits –
1. Certificate of deposits is considered as risk-less because default risk in them is almost negligible and hence its safe bet for investors.
2. Certificate of deposits is highly liquid and marketable and hence investors can buy or sell it whenever they desire to do so.
3. They are transferable from one party to another which cannot be done with term deposits and hence it is an added advantage for investors who are willing to invest in it.
4. It is a time deposit that restricts holders from withdrawing funds on demand, however if an investor wants to withdraw the money, this action will often incur a penalty.
5. A certificate of deposits may be payable to the bearer or registered in the name of the investor. Most certificates of deposits are issued in bearer form because investors can resell bearer CD’s more easily than registered CD’s.
Hence from the above one can see that certificate of deposits can be one of the alternatives for a investor if he or she does not want to invest in term deposits.