Certificates of Deposit Law and Legal Definition

Certificates of Deposit or CD is a certificate issued to a bearer by a financial institution with whom the bearer has deposited money for a particular term. Hence, CD is a savings certificate issued for term deposits entitling the bearer to receive interest. It is a financial product commonly offered to consumers by banks, thrift institutions, and credit unions. A CD contains a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs issued by commercial banks are insured by the Federal Deposit Insurance Corporation (FDIC). The term period of a CD generally ranges from one month to five years. Therefore, the holders of CD cannot withdraw funds on demand, but they can withdraw the money by paying a penalty. “Certificates of deposit have most of the characteristics of promissory notes, but a paper, to be entitled to the force and effect which paper of those classes has, whether negotiable or non-negotiable, must contain a promise in writing by one person to pay another person therein named, or to his order, or to bearer, a specified sum of money, absolutely and at all events. A paper not having those characteristics cannot be a certificate of deposit or promissory note. In its usual and ordinary form, a certificate of deposit contains the elements of a promissory note, rather than of a mere receipt, and in general has that legal effect.”[ Southview Corp. v. Kleberg First Nat'l Bank, 512 S.W.2d 817 (Tex. App. 1974)].