*Certificate of Deposit -CD*
A certificate of deposit (CD) is a short-term security with a fixed interest rate and maturity date issued by a bank that seeks to raise funds from the secondary money market. Certificates of deposit are a special form of term deposits, which are issued for a specific reference period, usually up to 12 months, for a certain amount and a certain interest rate, fixed or variable, traded in the secondary money market. Regardless of the duration of a CD, the issuing bank is bound to pay off the coupons to the holder.
Short-term CDs have no coupons, and the holder receives the principal and accrued interest at maturity. However, in the case of a long-term certificate of deposit, the coupons are paid at regular intervals like, for example, every six months. The trading price of a CD in the secondary market is determined by its yield to maturity.
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