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| Bank certificate of deposit |
Certificate of Deposit - this is a security certifying the amount of the deposit made by the bank, and rights of the depositor (certificate holder) to receive, at maturity, the deposit amount and due in the certificate per cent.
Certificate of Deposit - this is a temporary bank deposit. Certificates of deposit are usually issued by commercial banks, but in many countries you can buy them through brokers. Conventional terms of certificates range from 3 months to 5 years. They are manufactured under a certain percentage, and in any denomination deposit certificate - a certificate of the issuing bank of deposit. The deposit certificate confirms the right of the depositor to receive, at maturity, the deposit amount and interest thereon. Certificates of deposit can be deposited in a foreign currency.
The mechanism bank certificate of deposit
The certificate of deposit of funds in the bank. This is the most well-known and accessible financial instrument. In fact, placing funds on deposit or purchasing certificates of deposit with your broker, the investor gives their money in the management of his choice to the bank. Upon expiry of the deposit agreement the bank returns to the investor his money, as well as pay a certain amount of the contract for the right use of money, the amount of which is expressed as a percentage of the deposit. Bank deposit is classified as financial instruments with fixed income, ie, It is known in advance the exact amount of income, regardless of how successful investor funds will be used.Risk bank certificate of deposit
Any financial instrument with a fixed income based on the independence of the creditor remuneration of the loan using the results of the borrower. The risk of receiving less remuneration and non-return of the credit arises only in the case of the borrower's bankruptcy. However, if an investor has to do with a deposit in a US bank, in the case of financial insolvency of the bank selected its obligations assumes the state represented by the Federal Deposit Insurance Corporation (Federal Deposit Insurance Corporation). Size FDIC liability - up to $ 100,000.
Yield certificates of deposit
It should be noted that in comparison with other financial instruments, bank deposit has the lowest yield. The reason is that in fact the bank acts as an intermediary between the investor, as the creditor and those who ultimately uses advances. Therefore, income from the provision of credit to be divided between the investor and the bank. The positive side of the bank deposits is their high reliability, which is achieved due to the fact that investment funds managed by professionals, as well as by federal deposit insurance (about US). The weakness of deposits - a low yield, as well as the inability to use them as collateral to obtain a loan at a brokerage firm.
Forms bank certificate of deposit
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| Bank certificate of deposit |
Certificates of deposit term. Bring interest income and have terms ranging from 30 days to several years; face value of these certificates may vary from less than $ 1,000. (Individual certificates of deposit) to more than 100 thousand. Dollars. (Institutional certificates of deposit); certificates for very large sums can access and endorsed properly, can serve as collateral for loans.
Certificates of deposit with a zero rate is sometimes used for compensating balances, t. To. The reserve requirements on them less. Certificates of Deposit with a floating rate. Introduced in 1973 .; their interest rate is tied to the rate of 90-day certificates of deposit and updated every 90 days.
Certificates of Deposit with a floating interest rate. It was abolished in 1981 .; their interest rate was tied to the weekly auction of six-month treasury bills, and they can be used as collateral for short-term loans.
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