Certificate of Deposit (CD): Meaning, Full Form, Benefits, Features, & Eligibility
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When it comes to financial instruments, the Certificate of Deposit (CD) stands out as a reliable means of investment. This term, often abbreviated as CD, refers to a fixed-term deposit arrangement banks offer. A CD involves depositing a fixed sum for a predetermined duration, attracting more favourable interest rates than standard savings accounts.

This blog will discuss the Certificate of Deposit meaning, features, and benefits, explaining why they are a secure and rewarding choice for individuals aiming to maximise returns on their savings.

What is a Certificate of Deposit (CD) Full Meaning and full Form?

By now, you must have known what the full form of a CD is. Let’s talk about its meaning. A Certificate of Deposit (CD) is a savings product designed for individuals seeking higher interest rates on a lump sum over a fixed duration.

Unlike regular savings accounts, CDs demand that the money remains untouched for the entire term to avoid penalties. This fixed-time commitment is a trade-off for the higher interest rates CDs usually offer. With the benefit of increased returns, a CD provides a stable and rewarding avenue for those willing to invest their money for a specified period.

Features & Benefits Certificate of Deposit

Here are the key features of a CD:

1. Minimum Deposit Requirement

CDs necessitate a minimum deposit of Rs. 1 lakh or multiples of this amount. This feature ensures individuals committing to CDs have a substantial sum to invest.

2. Exclusive Issuers

Scheduled Commercial Banks (SCBs) and All-India Financial Institutions exclusively offer CDs. It ensures a standardised regulatory framework and issuance via reputable financial entities.

3. Variable Term Periods

SCB-issued CDs typically have a term period of 3 months to 1 year, whereas those issued by financial institutions have a more extended term ranging from 1 to 3 years. This variable-term structure allows investors to choose a CD that aligns with their investment horizon.

4. Transferability in Dematerialised Form

CDs in dematerialised form can be transferred through endorsement or delivery, similar to dematerialised securities. This feature enhances the liquidity and ease of transactions for CDs.

5. No Lock-in Period

Unlike some other financial instruments, there is no lock-in period for a certificate of deposit. This flexibility allows investors to access their funds or reinvest after the agreed-upon term without restrictions.

6. Tax Implications

CDs are fully taxable under the Income Tax Act. It means that the interest earned on CDs is subject to taxation, and investors should consider this aspect while evaluating the overall returns from their investment.


Here are the key benefits of a CD:

Capital Preservation and Security

CDs ensure capital preservation, providing a secure financial haven with a guaranteed return at maturity and shielding investors from market volatility.

Predictable Growth

It offers a stable and assured increase in savings over the investment tenure, making it attractive for risk-averse investors seeking predictable growth.

Higher Interest Rates

The Certificate of Deposit interest rates are generally higher on lump sum investments, enhancing potential returns and appealing to those seeking competitive yields.

Flexible Payout Options

With options for monthly, annual, or lump sum payouts, CDs offer flexibility to align with individual financial goals and investment preferences.

Cost-Efficient Investment

CDs incur no additional costs or fees beyond the initial investment, making them a transparent and cost-efficient choice for investors.

Certificate of Deposit Eligibility

  • Certificates of Deposit are issued by scheduled commercial banks and approved financial institutions, adhering to RBI guidelines.
  • Individuals, corporations, companies, and funds can invest in CDs. NRIs are eligible but on a non-repatriable basis only. It means the funds must stay within the country where the investment is made and cannot be taken out to another nation.
  • Banks and financial institutions cannot offer loans against CDs, ensuring the investment's integrity.
  • Banks cannot buy CDs before maturity, maintaining the market's stability. However, RBI may relax these norms temporarily.
  • Banks must adhere to statutory liquidity ratio (SLR) and cash reserve ratio (CRR) requirements concerning CD prices.

How Does a Certificate of Deposit (CD) Work?

CDs are a simple and convenient savings option banks provide. When you invest in a CD, you agree to keep a specified amount with the bank for a fixed period, say one year. In return, the bank promises a predetermined interest rate and assures the return of your principal at the term's end. For example, putting Rs. 10,000 in a 1-year, 5% CD would yield Rs. 500 in interest over the year, plus your initial Rs. 10,000 at maturity.

Things to Consider When Investing in a CD

Here are certain factors you should consider before investing in a CD:

  • Tenure

The period you agree to leave your money in the CD. Longer tenures often come with higher interest rates, but your funds are locked in for that duration.

  • Returns

Research and understand the potential earnings or returns from the CD. Compare different CDs to make an informed decision.

  • Interest Rate

Interest rates on CDs can change based on economic conditions. Stay informed about these changes as they impact the returns on your investment.

  • Limited Liquidity

CDs have limited liquidity as they tie up your funds for a fixed period. 

  • Investment Duration

The time you commit to keeping your money in the CD. Generally, longer durations attract higher interest rates, offering better returns.

Also Read: Step by Step Guide for Cheque Writing Tips

Certificate of Deposit vs. Savings Account

CDs function similarly to savings or money market accounts. They are designed for specific financial goals or to park surplus funds not needed for daily expenses. Unlike savings accounts, CDs require a single initial deposit, which remains untouched until maturity—ranging from 6 months to 3 years or more. While this restricts withdrawals, it allows for higher interest rates than savings accounts.

CDs serve as a disciplined savings option, offering a guaranteed return on investment. They suit individuals looking to secure funds for defined purposes or those comfortable with a fixed term for optimal returns.

Pros and Cons of CD Certificate of Deposit


  • Some CDs offer higher Annual Percentage Yield (APY) than savings accounts, potentially providing better returns.
  • CDs protect funds, limit easy access, and promote disciplined savings.
  • It allows you to separate money for specific goals or future needs, aiding financial planning.
  • They provide a stable, guaranteed rate, ensuring a predictable return on your savings.
  • The principal amount remains secure for the entire term of the CD.


  • They generally tie up funds for an extended period, limiting liquidity and accessibility.
  • You may incur penalties if you withdraw funds before the CD's maturity date.
  • Rising interest rates in the market may impact the overall yield of the CD.

Also Read: What is IFSC Code & MICR Code


FAQs About Certificate of Deposit

1.) Can funds be transferred between my online Certificate of Deposit (CD) and other bank accounts?

Yes, you can make a one-time transfer between your online CD and other bank accounts during the grace period.

2.) Is it possible to withdraw funds from my online Certificate of Deposit?

Yes, during the grace period, you can make a single withdrawal from your online CD without penalties. However, withdrawing before maturity incurs an early withdrawal penalty.

3.) Does my Online CD renew automatically upon reaching its expiration date?

Once your online CD matures, you get a grace period to withdraw or transfer the funds. If not, the bank might automatically renew the CD with a potentially different interest rate for the next term.

4.) What occurs when a Certificate of Deposit matures?

Following the maturity of a CD, investors enjoy a grace period to either withdraw or transfer funds to a new CD. Alternatively, automatic renewal may be initiated by banks or financial institutions.

5.) By whom is a Certificate of Deposit issued?

Scheduled commercial banks (excluding Regional Rural Banks and Local Area Banks) and authorised All-India Financial Institutions can issue CDs as permitted by the RBI.

6.) Can I have multiple Certificates of Deposit with different terms at the same bank?

Yes, you can have multiple CDs with the same bank or financial institution, as there's no set limit. Holding multiple CDs depends on aligning them with your specific financial requirements.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.