Negotiable certificates of deposit (NCDs)

Definition

Negotiable Certificates of Deposit (NCDs) are fixed-term deposits issued by banks that can be traded in secondary markets. They typically offer higher interest rates than regular savings accounts because they require a larger minimum deposit.

5 Must Know Facts For Your Next Test

1. NCDs have a specified maturity date, which can range from a few weeks to several years.
2. They are considered low-risk investments due to the issuing bank's backing.
3. The minimum denomination for NCDs is usually $100,000 or more, making them more suitable for institutional investors.
4. Interest on NCDs can be paid at maturity or periodically, depending on the terms of issuance.
5. Because they can be sold before maturity in the secondary market, NCDs provide liquidity compared to non-negotiable CDs.

Review Questions

• What are the typical minimum denominations for Negotiable Certificates of Deposit?
• How do NCDs differ from regular savings accounts in terms of interest rates and liquidity?
• Why are NCDs considered low-risk investments?

Related terms

Certificate of Deposit (CD): A time deposit offered by banks with a fixed interest rate and maturity date.

Secondary Market: A market where investors buy and sell securities they already own.

Treasury Bills (T-Bills): Short-term government securities with maturities ranging from a few days to one year, sold at a discount to face value.