What is a Certificate of Deposit (CD)?

Last Updated: 18 Aug 2025

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

Any All-India Financial Institution or a Scheduled Commercial Bank can issue a CD. They are issued at a discount, provided at 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.

 

Features of CD

You will get a better understanding of the Certificate of Deposit definition by getting into its characteristics. Here are some salient features of CDs 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 a term period ranging from 3 months to a year.
• CDs issued by financial institutions have a term period ranging from 1 to 3 years.
• Similar to dematerialised securities, CDs in dematerialised form are transferable through means of endorsement or delivery.
• There is no lock-in required for a CD investment.
• 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.

Advantages of Issuing CDs in India

There are various Certificate of Deposit benefits, 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 an entirely secure financial instrument with an assured sum at maturity, similar to traditional insurance. The money you put into your CD will continue to increase predictably, and there is no risk of any loss. It is a very secure short-term to mid-term investment.
• High-Interest Rate: This benefit is what attracts most investors towards a CD. The Certificate of Deposit interest rates can go as high as 7.8% on the lump sum deposited, compared to traditional savings accounts, whose interest rates average around 4%.
• Flexibility: You have the choice to receive a monthly, annual or lump sum payout of your CD at maturity. You are allowed to choose the tenure and the amount of investment, but it has to follow a few rules laid out by the bank. Customising the bank Certificate of Deposit to your situation is the key to getting the most out of it.
• Low to Minimum Maintenance Costs: There are always brokerage costs for delivery as well as buying and selling shares. CDs tend not to have any extra charges. You only pay what you invest with some banks.

Difference Between CD vs FD

The table below presents a comparative analysis of Certificates of Deposit (CDs) and Fixed Deposits (FDs) based on key investment parameters.

Criteria	Fixed Deposit (FD)	Certificate of Deposit (CD)
Minimum Investment Amount	The minimum investment amount for a fixed deposit is ₹1,000.	The minimum deposit amount for a certificate of deposit is ₹1 lakh.
Example	An individual opens a fixed deposit account with ₹5,000 in a public sector bank.	A Certificate of Deposit example is a corporate investor purchasing a ₹10 lakh CD from HDFC Bank for 6 months.
Return on Investment	Returns typically range from 3.5% to 8%.	CDs, especially those issued by organisations, tend to offer higher interest rates than commercial banks.
Investment Tenure	Considered a long-term investment, with a maximum maturity period of up to 10 years.	Generally a short-term investment, with maturity periods ranging from 1 to 3 years.
Collateral	Loans can be availed against a fixed deposit.	Loans cannot be availed against a certificate of deposit.

Difference between CD vs Commercial Paper 

Both Certificates of Deposit (CDs) and Commercial Papers (CPs) are short-term money market instruments, but they differ in purpose, issuer, and risk profile. The table below highlights their major distinctions.

Criteria	Certificate of Deposit (CD)	Commercial Paper (CP)
Issuer	Issued by banks and financial institutions.	Issued by corporate entities, usually with high credit ratings.
Purpose	Primarily used to raise funds from the public or institutions.	Mainly issued to meet short-term working capital requirements.
Minimum Investment Amount	₹1 lakh.	₹5 lakh.
Tenure	Ranges from 7 days to 1 year.	Typically ranges from 7 days to 1 year but usually on the shorter end.
Risk Level	Lower risk, as they are backed by banks.	Slightly higher risk, as they are unsecured and depend on the creditworthiness of the issuer.
Tradability	Can be traded in the secondary market.	Also tradable in the secondary market.
Collateral	No collateral is required.	No collateral is required.

How Are CD Rates Determined?

CD rates are affected by numerous economic and Institutional factors. Below is a brief overview of how it plays out with the returns:

• Monetary Policy of the RBI: Repo rate affects CD rates directly. A repo rate increase also usually results in a higher return on CDs.
• Demand and Supply in the Money Market: Limited liquidity prompts banks to offer higher CD rates. Surplus funds usually result in lower rates.
• Creditworthiness of the Issuer: It is possible that a long-established bank may provide slightly better rates because they are less risky. Lesser recognised establishments may provide better returns to draw buyers.
• Tenure of the CD: The longer the CD maturity period, the higher interest rate you would typically earn, as they tether your money for a longer period.
  Investment Amount: Some banks or financial institutions offer preferential rates for higher deposit amounts.
• Prevailing Inflation Rate: If inflation is high, banks may increase CD rates to maintain the attractiveness of their investments and protect real returns.
• Market Competition: Banks will adjust their rates based on what competitors are offering to retain or attract depositors.

Being aware of these factors helps investors make better decisions when selecting a CD.

Eligibility and Participants

CDs are structured financial instruments governed by the RBI under guidelines. A few eligibility requirements apply to both the issuers and investors who wish to participate in the CD market.

Who Can Issue CDs?

In India, CDs are predominantly issued by scheduled commercial banks (excluding Regional Rural Banks and cooperative banks) and All-India Financial Institutions, such as NABARD, EXIM Bank & SIDBI. These institutions issue CDs to gather short-term deposits from the market in an organised and safe way.

Who Can Invest in CDs?

Different types of investors are allowed to purchase CDs. Participating entities are individuals (including NRI on a non-repatriable basis), corporates, mutual funds, insurance companies, provident funds, trusts and other institutional Investors. CD investors look for relatively better returns than what normal savings or current accounts offer, coupled with the trust of a top-tier issuer.

A CD cannot be issued to or held by a minor. The RBI guidelines state that if the maturity period is more than six months, the investment should be in a dematerialised form.

How to Buy a Certificate of Deposit

Buying and selling CDs is like trading in the securities market. Here is the main set of steps:

Step 1: Mutual Agreement

The price, tenure, and other related details of the CD must be mutually agreeable to the buyer and the seller. It ensures both parties get what they bargained for.

Step 2: Delivery Instruction Slip Submission

The seller must authorise their depository participant by submitting a delivery instruction slip. This slip includes directions to debit the seller’s demat account and transfer the CD to the demat account of the buyer.

Step 3: Transfer of CD

The depository participant processes the instructions. Then the CD is transferred electronically to the buyer’s account. This completes the transaction.

Step 4: Seek Professional Help if Needed

In case there is any confusion while going through the process, it would be beneficial to ask a financial advisor or professional. They can help with documentation, compliance, and maintain coordination between various parties.

Conclusion

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 to secure 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 dematerialised account. An online Demat account is required to hold dematerialised 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.

Frequently Asked Questions

1. Can I transfer funds between my online CD and other bank accounts?

Yes, during the grace period, you can make a one-time transfer between your Online CD and other bank accounts. This period allows you to deposit, withdraw, or renew your Online CD without any penalties.

2. Can I withdraw funds from my online CD?

A one-time penalty-free withdrawal can be made during the grace period. However, if you request your money prior to the maturation of the Certificate of Deposit and outside of the grace period, an early withdrawal penalty will be imposed.

3. Will my online CD renew automatically upon maturity?

When your online CD reaches its maturity, you are granted a grace period to determine if you plan to take your funds out or re-invest it. If the CD is not addressed during that period, it could be automatically renewed by the bank, often at a different rate for a new term.

4. What happens when a CD reaches maturity?

When a CD matures, you enter a grace period during which you can withdraw the funds or transfer them into a new CD. If no action is taken, the issuing bank or financial institution may renew it automatically.