Certificates of Deposit

1
Certificates of Deposit

• A certificate of deposit or CD is a time deposit,
  a financial product commonly offered to consumers
  by banks, thrift institutions, and credit unions

By. Kainalu Kaululaau
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Compare Contrast

• CDs are similar to savings accounts in that they
  are insured and thus virtually risk-free they
  are "money in the bank"
• They are different from savings accounts in that
  the CD has a specific, fixed term, a fixed
  interest rate.

3
Interest Payout

• At most institutions, the CD purchaser can
  arrange to have the interest periodically mailed
  as a check or transferred into a checking or
  savings account.

4
Fixed Rates

• Fixed rates are common, but some institutions
  offer CDs with various forms of variable rates.
  For example, in mid-2004, with interest rates
  expected to rise, many banks and credit unions
  began to offer CDs with a "bump-up" feature.
  These allow for a single readjustment of the
  interest rate, at a time of the consumer's
  choosing, during the term of the CD.

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Bump Up

• A Bump Up CD allows the account holder the option
  to increase the interest rate once during the
  term of the CD. Upon request, the bank will bump
  up the interest rate on the certificate of
  deposit to a higher rate being offered by the
  issuing bank on that CD (or a comparable term
  CD). The rate change does not change the original
  maturity date of the CD.

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Penalties

• May be measured in months of interest, may be
  calculated to be equal to the institution's
  current cost of replacing the money, or may use
  another formula. May or may not reduce the
  principalfor example, if principal is withdrawn
  three months after opening a CD with a six-month
  penalty.

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Reference

• http//en.wikipedia.org/wiki/Certificate_of_deposi
  tBrokered_CDs
• http//en.wikipedia.org/wiki/FileUS_Postal_Saving
  s_System_5.jpg