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Certificates of Deposit 
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority.)

A receipt for the deposit of funds in a bank.  Certificates of deposit (CDs) are of several types:  

1.   Demand CDs.  Demand CDs are non-interest bearing and payable on demand; they are used mainly as a guarantee of payment - for example, as lottery prizes.

2.   Time CDs.  Time CDs are interest bearing and may range in maturity from 30 days to several years; denominations vary from less than $1,000 (individual CDs) to more than $100,000 (institutional CDs); the very large denominations may be negotiable and, properly endorsed, may serve as security for loans.  Zero-rate CDs are sometimes used in lieu of compensating balances because of their lower reserve requirements.

3.   Variable-rate CDs.  Variable-rate CDs were instituted in 1973; their interest rate is tied to the 90-day CD rate and is adjusted every 90 days.

4.   Variable interest CDs.  Variable interest plus CDs were discontinued in 1981; their interest rate was tied to the weekly auction of six-month Treasury bills, and they could be used as collateral for short-term loans.

Banks are required to keep reserves against demand and time CDs corresponding to the reserves for demand and time deposits, respectively.

Time certificates of deposit were subject to Regulation Q interest rate ceilings, but in 1970, to curb the outflow of deposits when market interest rates exceeded ceiling rates, the ceiling on CDs of $100,000 or more and of less than 90 days' maturity was removed; in 1973, the ceiling rates on all such large CDs was eliminated; and in 1986, pursuant to the schedule set by the DEPOSITORY INSTITUTIONS DEREGULATION AND MONETARY CONTROL ACT OF 1980, deposit interest rate ceilings on all time and savings deposits expired.

5.   No-penalty CDs.  No-penalty CDs let investors make withdrawals at any time or at set intervals.  Federal law no longer requires financial institutions to charge for early withdrawals of principal but are allowed to deduct one to three months' interest on CDs of one year or less, three to six months' interest on longer terms.

6.   Rising-rate CDs.  Rising-rate CDs pay a continually higher rate each time they are rolled over during a specified term, e.g., every six months over a period of three years.

7.   Stock-indexed CDs.  Yields are tied to the stock market.  A "bull" version allows the investor to bet on a market rise; a "bear" version allows for a bet on a market decline.

8.   Brokered CDs.  CDs obtained from a stockbroker instead of from a bank or S&L.  Brokered CDs are traded on secondary markets, which gives the investor the option to sell without penalty before the CD matures.

9.   Sports/Election-linked CDs.  Sports CDs were marketed by Skokie ( Illinois ) Federal Savings, which once issued a Super Bowl CD tied to the Chicago Bears.  Sports CDs have also been indexed to basketball, football, hockey and baseball and to professional, college, and high-school teams.


ALTON , G.R. "Recent Changes in Handling Bank Failures and Their Effects on the Banking Industry."  Federal Reserve Bank of St. Louis Review, June/July 1985.
"CDX - A New Exchange for Fully Insured CDs."  ABA Banking Journal, February, 1983. HUNG, T.Q. " U.S. Banks Have Resumed Issuing Eurodollar CDs."  Currency 7 Bond Market Trends, Vol. 1, No. 18.  Merrill Lynch Capital Markets, Securities Research Division/International Research, May 6, 1985 .
HUERTAS, T.F., and STRAUBER, R.L. "Deposit Insurance Overhaul or Tune-Up?"  Issues in Bank Regulation, Winter, 1986.
KAUFMAN, G.G. "Measuring and Managing Interest Rate Risk:  A Primer."  Federal Reserve Bank of Chicago , Economic Perspectives, January/February, 1984.
MORRISON, PAT.  "The ABCs of the New CDs."  Money Magazine, February-March, 1990.
World Financial Markets.  Morgan Guaranty Trust Company of New York , New York , NY.  

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