Syndicate
Certificates of Deposits
Certified resources investor a very convenient way of investing his short-term funds. These can be purchased through the banks and the thrift institutions for lesser amounts and specific periods. For example, you could decide to invest $500 in a CD for six months at 2% annual interest. The $500 is deposited in a bank and in a six-month period the bank will offer to pay you $505 (principal plus interests) at maturity. The CDs are not negotiable and if you need the funds before they mature there is no market or buyer for your security. You would have to go to the issuing financial institution and pay the early redemption penalty (such as forfeiting the interest for a quarter) so as to collect your CD before its maturity. Negotiable CDs are negotiable as long as they are negotiated at the secondary market.
A negotiable CD has a denomination act (from $100,000) a specific maturity date and an interest rate that could be negotiated in the open market before its maturity.
A round lot for a trade in the market is of $1 million or greater. Rates and maturities are negotiated individually between lenders and financial institutions. Rates on negotiable CDs generally are comparable with those of other money-market securities such as Treasury bills and commercial papers. Banks that are members of the FDIC provide insurance of $100,000 per ownership of accounts in a bank.
Many investors use CDs as their investment means for their short-term funds.