CD Savings Accounts: Features, Types, Advantages and Disadvantages


What is a certificate of deposit (CD) and why is it needed? Bonds carry potentially higher yields. Bank deposits are more convenient in terms of placement and replenishment. Advantages of a certificate of deposit: its relative flexibility, liquid market circulation, and profitability exceeding the interest on traditional bank deposits. All this allows you to consider certificates of deposit as the foundation of your investment portfolio.

A bit of history

At their core, certificates of deposit are circulating evidence of bank deposits. Keywords here: “circulating” and “deposit”.

The question is: why are they needed? The emergence of a security is associated with one significant disadvantage of the traditional fixed-term bank deposit. A term deposit can be withdrawn from the bank prematurely only if there are significant financial losses of the accrued interest. As a result, a need arose for some kind of intermediate financial instrument, which is as close as possible to a fixed-term deposit, but with more liquidity and circulating on the market.

Initially, the instrument was not even perceived as a security but acted only as its surrogate, and only later was it recognized and enshrined at the legislative level by the states of most countries.

A certificate of deposit is a “young” security. It was first introduced into circulation in the US market in the early 60s of the XX century. In the late 60s, the innovation was recognized as promising in the UK, and then the securities spread to other countries.

Since that time, certificates have firmly occupied their segment in the securities market, while not being the most demanded financial instrument.

So what exactly is a certificate of deposit?

A certificate of deposit (CD) is a security that certifies the depositor’s rights to receive the invested funds and accrued interest at the end of the validity period.

What is the difference between a savings certificate and a certificate of deposit? The answer is simple. The first one is intended for individuals, the second one is for legal entities. In all other respects (terms of issue and order of market circulation) these securities are completely identical.

Important! A deposit is a contract. The certificate is a security.

Who issues certificates of deposit?

Banks that meet a number of mandatory requirements:

  • Carrying out continuous activities – at least 2 years;
  • Published annual accounts must be verified by auditors;
  • The bank must comply with mandatory regulations and requirements regarding its reserves.

Compared to other securities, the requirements for the issuance of certificates are simplified. The issue registration procedure is not required. The bank determines the terms of issue and circulation based on its own strategy. True, there is a strict formalized procedure for coordination and approval by the bank of all parameters of the issue. In practice, this means that raising funds from investors by issuing certificates is a simple, quick and less costly procedure (compared to, for example, issuing bonds).

What are the types of CDs?

A personal certificate, like a bank deposit, is tied to a specific legal entity. But, unlike a deposit, a document can still change its owner. To do this, you will have to conclude an assignment agreement.

The bearer certificate is transferred to third parties without any restrictions. Actually, bearer securities form a separate sector of the market, providing investors with additional investment opportunities.

Important! Selling a document ahead of time to another market player, as a rule, entails fewer losses than an early closing of a bank deposit. This is its key advantage.

Banks issue securities in series or on a one-off basis.

Advantages and disadvantages of CD

A certificate of deposit combines the useful properties of securities and time deposits:

  • High degree of reliability and low risks;
  • The document has a fixed interest rate. It is not possible to change the interest rate by the issuing bank;
  • Free circulation. You can sell, bequeath, donate. You can leave it as a pledge, for example, when getting a loan from a bank. Keep in mind that this often contributes to lower interest rates. Funds in a bank deposit, for example, are not subject to collateral;
  • A CD can be presented for redemption at any branch of the issuer.

From another point of view, by analogy with other financial instruments, a certificate of deposit has its drawbacks:

  • Capitalization (accession) of interest is not provided since the rate is fixed;
  • Safety. The paper can simply be stolen. In this case, the bearer certificate holders bear especially great risks;
  • The non-cash procedure for all settlements related to the purchase/sale somewhat limits their turnover and liquidity. This problem can be mitigated by using bearer certificates;
  • The Deposit Insurance Law does not apply to bearer certificates. In case of problems with the issuing bank (license revoked), you will not receive insurance compensation. And all financial claims will be considered on a first come, first served basis. Please note: the holders of registered securities are insured;
  • The paper does not provide for partial replenishment or withdrawal of funds, therefore it can hardly be perceived as an instrument of accumulation;
  • Not suitable for speculative investments;
  • Income is taxed.

What does a certificate of deposit look like?

The document blank contains all the parameters of the issue, market circulation and payment. Required details:

  • header “certificate of deposit”;
  • series and number;
  • the date of the deposit;
  • amount;
  • unconditional bank obligation to return the deposit together with accrued interest;
  • maturity date;
  • interest rate;
  • the amount of accrued interest;
  • rate for early demand;
  • contact information, bank details and the number of the correspondent account;
  • for a personalized certificate: the name and contact details of the depositor;
  • signatures of bank employees (2), sealed.

If necessary, the bank has the right to identify additional parameters of the issue and conditions on the form.


  • The certificate is considered invalid in the absence of any of the specified details;
  • If a business transaction is carried out with a paper that is not fixed by the parameters and conditions, it is considered invalid.

Forms for securities are issued only by specialized licensed printing companies. From this point of view, the document has a high degree of security, and it is almost impossible to forge it.