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All you need to know about certificate of deposit

Everything about certificate of deposit: Meaning, types, steps to buy and more

about certificate of deposit india


In the Indian financial landscape, a certificate of deposit represents a fixed-term investment instrument issued by banks to investors. These instruments come with varying tenures and interest rates, allowing investors to choose the option that best suits their financial goals and risk appetite.

Understanding the nuances of a certificate of deposit is important for those keen on maximising their returns while safeguarding their hard-earned capital. In this detailed article, we will understand all about certificate of deposit in India.

What is a certificate of deposit in India?

A certificate of deposit (CD) serves as a valuable financial tool for individuals and investors. It is a savings instrument for people seeking a secure way to grow their money. It offers individuals the opportunity to earn interest on a lump sum of money over a predetermined duration. 

Unlike standard savings accounts, CDs typically offer higher interest rates in exchange for locking in funds for a predetermined period. This financial savings option is renowned for its stability. 

Certificate of deposit typically offers higher interest rates compared to standard savings accounts. It serves as compensation for the loss of liquidity incurred by the depositor. 

With its fixed interest rate and guaranteed return, a certificate of deposit presents a conservative yet reliable option for individuals seeking to grow their savings without exposing themselves to the volatility of riskier investment avenues.

Bank issues CDs ranging from six months to five years, with interest rates varying based on the tenure chosen. Investors deposit a specific amount of money with the bank for a specified period, and in return, they receive interest payments at regular intervals or upon maturity.  

Components of certificate of deposit

Here are the four main components of a CD.

1. Interest rate: 

Most CDs have a fixed interest rate, meaning it stays the same throughout. Some CDs have variable rates, which could earn you more if rates go up. With a fixed rate, you know exactly how much you’ll earn, but if rates rise later, you might miss out on better returns.

2. Term: 

This is how long you agree to keep your money in the CD without any penalties. It could be 6 months, 1 year, 18 months, or more. The term ends on the maturity date when you can take out your money without any fees.

3. Principal

This is the amount you put into the CD when you open it unless it’s a special type of CD.

4. Withdrawal: 

The bank or credit union where you open your CD will decide things like early withdrawal penalties and whether your CD will automatically renew when it matures.

Also Read: Investing on a budget? Top low-cost investment options to consider

What are the types of certificate of deposit in India?

Now that we’ve covered the basics about certificate of deposit in India, let’s get into the different types of certificate of deposit in India:

Traditional certificate of deposit

Traditional CDs are straightforward investment options with fixed interest rates and tenures. Investors receive a predetermined rate of interest throughout the CD’s tenure, making it a stable choice for risk-averse individuals.

Bump-Up certificate of deposit

Bump-up CDs offer investors the flexibility to request a higher interest rate if market rates increase during the CD’s tenure. This feature provides a hedge against potential interest rate hikes, allowing investors to maximise their returns.

Step-Up certificate of deposit

Step-up CDs are designed to combat inflation by offering increasing interest rates over the CD’s duration. As time progresses, the interest rate on these CDs automatically rises, ensuring that investors stay ahead of inflation and earn competitive returns.

Brokered certificate of deposit

Brokered CDs are purchased through brokerage firms rather than directly from banks. While they may offer higher interest rates, investors should be aware of additional risks associated with brokerage firms.

Liquid or “No penalty” certificate of deposit

Liquid CDs provide investors with the flexibility to withdraw funds before maturity without incurring penalties. This feature appeals to individuals who require access to their funds in case of emergencies or unforeseen circumstances.


Additional types of certificate of deposit in India may include foreign currency-denominated CDs or callable CDs, each catering to specific investor preferences and objectives.

Difference between commercial paper and certificate of deposit in India

Let’s understand the difference between commercial paper and certificate of deposit in India:

CriteriaCommercial PaperCertificate of Deposit
IssuerCorporates and financial institutionsBanks and financial institutions
Maturity PeriodTypically short-term, up to one yearLonger maturity periods, ranging from months to several years
LiquidityLess liquid, traded in secondary marketsGenerally less liquid than CP
RiskHigher risk due to the issuer’s creditworthinessLower risk due to bank backing
Minimum Investment AmountHigher minimum investment amountsLower minimum investment amounts

Also Read: What are some of the best strategies for minimising investment fees? 

How to buy a certificate of deposit in India?

Here’s how to buy certificate of deposit in India:

Step 1: Research

Begin by researching and comparing CD rates and terms offered by various banks in India. This step helps investors identify the most suitable options based on their investment objectives.

Step 2: Choose a bank

Once the research is complete, investors can select a bank that aligns with their preferences and risk tolerance. Factors to consider include the bank’s reputation, interest rates, and customer service.

Step 3:Open an account

If investors do not already have an account with the chosen bank, they must open a savings or current account. This account will serve as the platform for purchasing the CD.

Step 4: Purchase CD

After opening the account, investors can proceed to purchase the CD by transferring the desired amount of funds. The bank will provide details regarding the CD’s tenure, interest rate, and maturity date.

Step 5: Monitor and renew the CD

Throughout the CD’s tenure, investors should monitor its performance and track the maturity date. Upon maturity, investors can decide whether to renew the CD, withdraw funds, or explore other investment opportunities.


A certificate of deposit serves as a valuable investment option for individuals and investors seeking stable returns with minimal risk. By understanding the various types and purchasing processes, investors can make wise decisions to optimise their investment portfolios and achieve their financial goals. To learn more about investment, subscribe to StockGro.

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StockGro Team

StockGro is India’s first and largest ‘Social Investment’ platform aimed at helping you master the art of “Trading & Investment”. Trade, Invest and get rewarded to Learn everything about ‘Investments’ the fun-filled way.

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