Certificates of Deposit

A certificate of deposit, or CD, is a time deposit with a bank. Time deposits may not be withdrawn on demand. The bank pays interest and principal to the depositor only at the end of the fixed term of the CD. CDs issued in denominations greater than $100,000 are usually negotiable, however; that is, they can be sold to another investor if the owner needs to cash in the certificate before its maturity date. Short-term CDs are highly marketable, although the market significantly thins out for maturities of three months or more. CDs are r r

32 PART I Introduction treated as bank deposits by the Federal Deposit Insurance Corporation, so they are insured for up to $100,000 in the event of a bank insolvency.

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