Certificate of deposit
A certificate of deposit is a deposit instrument issued by a bank with a stated maturity and return. Negotiable certificates can be sold in a secondary market before maturity, subject to demand and price; not every product called a certificate of deposit has the same transfer or early-withdrawal terms. An investor considers issuer credit risk, liquidity, maturity and the quotation basis. It is a money-market instrument rather than automatically a government-guaranteed risk-free investment.
Worked example
A company buys a negotiable $100,000 bank certificate maturing in six months. If it needs cash after three months, it may sell the instrument if a buyer exists; the price depends on current rates and issuer credit standing.
Common mistake
Assuming all certificates are freely redeemable at par before maturity or that a bank deposit has no credit or liquidity risk.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Supporting | September 2026–June 2027 |