What Does CD Stand for in Banking?

The letters "CD" in the banking industry stand for certificate of deposit. A CD is a savings instrument offered by banks that allows customers to receive interest in exchange for the bank using their money for a designated period of time.

Type of Investment

A CD is considered a promissory note with a time deposit restriction. Banks are obligated to pay the CD owner the original investment and designated interest after the specified CD time frame. Owners can incur a penalty if they withdraw their money early.

Issuance

Certificates of deposit are usually offered by commercial banks, but can also be found at credit unions or other financial institutions.

Insurance

CDs are insured by the FDIC depending on the owner's deposit total at the bank. (Each customer's deposits are insured for up to $250,000 total per bank.) They are considered a lower risk investment option than the stock market.

Time Frame

Most CDs are issued for one-month to five-year time frames.

Size

CDs that are less than $100,000 are deemed small CDs, while CDs that are more than $100,000 are called jumbo, or large CDs.

Interest Rate

Interest rates for CDs are determined by the economy, demand, time frame and market conditions. The rates for some CDs are negotiable.

References

• Certificate of Deposit