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Certificate of Deposit Vs Fixed Deposit

RBL Bank Apr 21, 2025

You can make your money work for you by enabling it to give you returns on investment. But, deciding where to invest your money is challenging. Various financial tools are available today to assist you with this, easing out your dilemma.

One could put their money in stocks, bonds, or mutual funds. You could also opt for commodities, real estate, or private equity. With so many options, the safest bet is to park one's money in a secure, stable investment like a certificate of deposit or fixed deposit.

While both offer fixed returns, stability, and liquidity, there are some differences between them. This post will elaborate on the difference between certificate of deposit and fixed deposit.

What is a Certificate of Deposit?

CD or Certificate of Deposit is a short-term money market instrument offered by banks and financial institutions in India. CDs were launched in 1989 to expand the variety of financial products available in India.

A CD is a contract between depositors and the approved bank or financial institution. The depositor lends the money to the bank and in exchange the bank provides interest to the depositor for a set time. The interest rate on a CD is pre-determined by the bank.

At the time when the instrument reaches maturity, depositors can redeem their funds. However, they cannot draw their funds from a CD before maturity.

CDs are given in a dematerialised format. It is shielded by the FDIC (Federal Deposit Insurance Corporation) and governed by the Reserve Bank of India (RBI), which establishes the rules for purchasing CDs.

Bank-issued CDs must have a maturity period of at least seven days but not more than one year from the date of issuance. Moreover, the minimum investment required for a CD is INR 1,00,000, and one can invest in multiples of INR 1 lakh after that.

The interest rate offered on CDs is higher than on savings accounts, making them more appealing.

What is a Fixed Deposit?

Another financial product offered by banks that may be used to both preserve and make more money is a fixed deposit.

A fixed deposit (FD) is a term deposit where you can invest money for a specific period and earn a fixed interest rate. FD interest rates are often greater than deposits made to savings accounts.

An FD requires the depositor/customer to make a set investment for a particular period to receive a fixed interest from the bank. Throughout the term of the FD, the depositor cannot withdraw money. However, some banks permit early withdrawals by charging a fee.

Depositors may place their money in fixed deposit for a period of seven days to twenty years. The bank calculates the interest rate in advance, and it stays the same during the duration of the FD.

Cumulative and non-cumulative FD are two options available for depositors. If the deposit is a cumulative FD, the whole interest amount will be paid out at maturity; if it is a non-cumulative FD, the interest will be paid out over time.

One of India's top fixed deposit schemes is offered by RBL Bank.

Difference between Certificate of Deposit and Fixed Deposit

CDs and FDs appear to sound identical at first glance. However, the specifics of an FD and a CD differ. Here are the criteria to compare certificate of deposit vs fixed deposit.

1. Minimum Investment Amount

One of the significant differences between a certificate of deposit & fixed deposit is the minimum investment required. A minimum of INR 1 lakh in a CD must be put. However, the minimum investment for FDs can be as little as INR 1,000.

2. Return on Investment

Compared to a bank FD, CD's interest rates are higher. CDs provide higher rates because of their significant risk compared to bank deposit plans.

3. Investment Horizon

The maximum duration for CDs is 12 months, allowing you to invest your money for a shorter period. In contrast, FDs provide a larger range of tenures to select from which could be anything from 7 days to 20 years.

4. Collateral for Loan

CDs cannot be used as collateral when applying for loans. However, you can provide FDs as collateral for a loan.

Conclusion

There are a few differences between certificate of deposit and fixed deposits. Depending on the investment amount, time horizon, and risk tolerance, one must decide which one to invest in. To achieve your short-term financial objectives, you can invest in a CD. However, you can think about investing in FDs if you want to generate consistent income on your money over a longer period.

Disclaimer:
Articles published on the website are merely indicative and suggestive in nature and do not amount to solicitation. The contents do not guarantee the desired returns and/or results. Reader is advised to exercise discretion and consult independent advisors for achieving desired result.

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