What is a Certificate of Deposit?

Certificate of Deposit or CD is a fixed-income financial instrument governed under the Reserve Bank and India (RBI) issued in a dematerialized form. The amount at payout is assured from the beginning.

A CD can be issued by any All-India Financial Institution or Scheduled Commercial Bank. They are issued at a discount provided on face value. Like a fixed deposit (FD), a CD’s purpose is to denote in writing that you have deposited money in a bank for a fixed period and that bank will pay you interest on it based on the amount and duration of your deposit.

Difference Between CD vs FD

There is no major difference between a certificate of deposit and a fixed deposit. They are one and the same. Fixed deposits are even referred to as CDs or time deposits by certain banks. They come with the same term period, a minimum requirement for a deposit, and high-interest rates compared to traditional savings accounts. One difference is that CDs are freely negotiable while FDs are not.

Features of CD

Here are some salient features of CD’s and how they compare to other financial instruments.

  • CDs can be issued in India for a minimum deposit of ₹1 lakh and in subsequent multiples of it.
  • Scheduled Commercial Banks (SCBs) and All-India Financial Institutions are eligible to issue a CD. Cooperative Banks and RRBs cannot issue a CD.
  • CDs issued by SCBs have in term period anywhere between 3 months to a year.
  • CDs issued by financial institutions have a term period ranging from 1–3 years.
  • Similar to dematerialized securities, CDs in dematerialized forms are transferable through means of endorsement or delivery.
  • There is no lock-in required for a CD.
  • One cannot issue a loan against a CD.
  • A certificate of deposit is fully taxable under the Income Tax Act.
  • A CD cannot be publicly traded.
  • Banks are not permitted to buy back a CD before its maturity.

Difference between CD vs Commercial Paper

There are two glaring differences between commercial paper and a CD. The first is who can issue them. A CD is issued by financial institutions and banks. Commercial papers are issued by primary dealers, large corporations and All-India Financial Institutions. The second difference is the minimum amount of deposit. A certificate of deposit requires a minimum investment of ₹1 lakh and thereafter permits multiples of it. A commercial paper, on the other hand, is issued for investments of at least ₹5 lakhs and in multiples of ₹5 lakh, thereafter.

When Do Banks Issue a CD in India?

CDs can be high-risk liabilities for any scheduled commercial bank. There are certain times where some banks are more likely to issue a CD compared to others. There can be boiled down to two factors:

  • In case of both low deposit growth and high demand for credit.
  • When there are stiff or tight liquidity conditions in the market signifying that cash is tied up in non-liquid assets.

*NRIs that have invested in a CD are not permitted to repatriate to their home country after the amount has matured.

Advantages of Issuing CD in India

CD There are benefits to issuing a CD which makes it such a popular choice among investors. They are:

  • Security:

    A certificate of deposit or FD is not going to eat up your capital due to market volatility. It is a completely secure financial instrument with an assured sum at maturity, similar to traditional insurance. The money you put into your CD will continue to predictably increase and there is no risk of any loss. It is a very secure short to mid-term investment.
  • High-Interest Rate:

    This benefit is what attracts most investors towards a CD. They offer larger rates of interest which can go as high as 7.8% on the lump sum deposited than traditional savings accounts whose interest rates average around 4%.
  • Flexibility:

    You can opt for monthly payouts, annual payouts, or a lump sum withdrawal of your CD at maturity. You can pick the duration and price you want to invest, although it has to fit certain parameters set by the bank. Tailoring the CD to your needs helps you get the most from it.
  • Low to Minimum Maintenance Costs:

    When it comes to the market there are always brokerage costs for the delivery, buying and selling of shares. There are usually no additional costs associated with a CD. You only pay what you invest with some banks.


Issuing a certificate of deposit is a secure way to invest in the short to medium term. Hopefully, this guide to CDs has shown you the eligibility, features, and benefits of fixed income instruments like CDs and why you should invest in them for your financially securing your future.

However, before you can proceed with your CD, you would first need to open a Demat account. Demat account is short for a dematerialized account. An online Demat account is required to hold dematerialized securities like a CD. You can open a Demat account with a few, simple, easy steps and be well on your way to procuring your first CD.