What is ‘Callable Certificate Of Deposit’
An FDIC insured certificate of deposit (CD) that contains a call feature similar to other types of callable fixed-income securities. Callable CDs can be redeemed (called away) by the issuing bank prior to their stated maturity, usually within a given time frame, and at a preset call price.
Explaining ‘Callable Certificate Of Deposit’
A bank adds a call feature to a CD so it does not have to continue paying a higher rate to the CD holder if interest rates drop. Callable CDs are often redeemed at a premium to their purchase price as an incentive for investors to take the call risk.
For example, if a bank issues a traditional CD that pays 4.5% to the investor, and interest rates fall to a point where the bank could issue the same CD to someone else for only 3.5%, the bank would be paying 1% higher rate for the duration of the CD. By using a callable CD, the bank can pay a premium to stop paying the higher rate.
Callable Certificate Of Deposit FAQ
What does a callable CD mean?
What is callable deposit?
How does certificate of deposit work?
Can you lose your money in a CD?
Who has the best CD rate right now?
How are CDs calculated?
Are CD good investments right now?
Further Reading
- An economic analysis of bank-issued market-indexed certificate of deposit–an option pricing approach – www.inderscienceonline.com [PDF]
- Deposit insurance around the globe: where does it work? – www.aeaweb.org [PDF]
- The design of bank-issued market-indexed certificates of deposit–survey, pricing and empirical test – www.inderscienceonline.com [PDF]
- Market discipline and deposit insurance – www.sciencedirect.com [PDF]
- How to access financial data of the internet and use for research in finance and economics – onlinelibrary.wiley.com [PDF]
