Certificate of Deposit (CD)
A bank time deposit paying a fixed rate for a fixed term, FDIC insured.
What is Certificate of Deposit (CD)?
Insured by the FDIC up to $250,000 per depositor, per bank, per ownership category. Early withdrawal usually costs an interest penalty. Negotiable (jumbo) CDs of $100,000 or more trade in the secondary market as money market instruments. Brokered CDs are bought through a broker-dealer and can lose market value if sold before maturity.
Certificate of Deposit (CD): a worked example
A 2-year CD at 4% is fully insured up to the limit, but carries inflation and reinvestment risk.
More terms in Bonds & Cash Equivalents
Commercial Paper
Unsecured short-term corporate debt, 270 days or less.
Treasury Inflation-Protected Securities (TIPS)
Treasuries whose principal adjusts with the CPI.
Zero-Coupon Bond
Sold at a deep discount, pays no interest, matures at par.
Asset-Backed Securities (ABS / MBS)
Bonds backed by pools of loans - mortgages, auto loans, credit cards.
General Obligation (GO) Bond
A municipal bond backed by the issuer's full faith, credit, and taxing power.
Revenue Bond
A municipal bond repaid only from the revenue of a specific project.
Insured Municipal Bond
A muni with third-party insurance guaranteeing principal and interest.
Municipal Bond Tax Treatment
Interest usually federally tax-free; gains are not.