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 A term deposit can be withdrawn from the bank prematurely only if there are significant financial losses of the accrued interest.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:

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:

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

What does a certificate of deposit look like?

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

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


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.