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Questions and Answers
Which of the following statements is true regarding the maturity period of a Certificate of Deposit?
Which of the following statements is true regarding the maturity period of a Certificate of Deposit?
- It typically matures after 14 days.
- It ranges from 1 month to 2 years.
- It ranges from 7 days to 1 year. (correct)
- It is fixed at 6 months regardless of issued terms.
What is the typical minimum investment amount required to open a Certificate of Deposit?
What is the typical minimum investment amount required to open a Certificate of Deposit?
- ₹1 lakh (correct)
- ₹10,000
- ₹25,000
- ₹50,000
What happens if an investor withdraws funds from a CD before its maturity?
What happens if an investor withdraws funds from a CD before its maturity?
- Funds can be accessed without any penalties.
- The investor receives a bonus interest rate.
- There are usually penalties for early withdrawal. (correct)
- There is an additional deposit required.
How does the interest rate on a Certificate of Deposit typically compare to that of a savings account?
How does the interest rate on a Certificate of Deposit typically compare to that of a savings account?
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Which feature of a Certificate of Deposit allows it to be more accessible for investors?
Which feature of a Certificate of Deposit allows it to be more accessible for investors?
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Study Notes
What is a CD?
- A Certificate of Deposit (CD) is a type of fixed term investment product.
- CDs typically offer higher interest rates than standard savings accounts.
- The minimum investment amount required for a CD is ₹1 lakh.
- Maturity periods for CDs range between 7 days to 1 year, depending on the bank.
- CDs are freely transferable, which means they can be sold or assigned to another party without restrictions.
- There is no lock-in period, allowing investors to access their funds after maturity without penalties.
Key Features of Certificates of Deposit
- Early withdrawal from a CD incurs penalties, affecting overall returns.
- Diversified issuance allows various types of investors to participate.
- Offered by financial institutions, making them accessible to the public.
- Provide a secure option for investment with predictable returns due to fixed interest rates.
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