DEFINITION of 'Bear CD'

A certificate of deposit whose interest rate fluctuates in inverse correlation to the value of an underlying market index. In other words, the interest rate paid on the CD increases as the underlying market index decreases in value.

BREAKING DOWN 'Bear CD'

This type of CD is used for two main purposes: speculation or hedging. An investor may want the safety of a CD but with the market exposure of a bear CD. This CD is bearish because the investor is betting that the market will fall during the life of the CD.

This type of instrument is also used to hedge actual market positions. If an investor has a long position that is highly correlated to the underlying market index, he or she may invest his or her excess cash in a bear CD, which can offset losses in the market investment.

RELATED TERMS
  1. Zero-Coupon Certificate Of Deposit ...

    A certificate of deposit (CD) that is purchased at a largely ...
  2. Liquid Certificate Of Deposit

    A certificate of deposit (CD) that allows withdrawls to be made, ...
  3. Indexed Certificate Of Deposit ...

    A savings certificate entitling the bearer to receive an interest ...
  4. Callable Certificate Of Deposit

    An FDIC insured certificate of deposit (CD) that contains a call ...
  5. Brokered Certificate Of Deposit

    A certificate of deposit (CD) that is purchased through a brokerage ...
  6. Uninsured Certificate Of Deposit

    A certificate of deposit (CD) which is not insured against losses. ...
Related Articles
  1. Investing

    Are CDs Good Protection For The Bear Market?

    Certificates of deposit promise stable income in any market, but do they deliver?
  2. Managing Wealth

    What Is A CD Ladder?

    Find out how a CD ladder can protect you from interest rate risk.
  3. Investing

    Callable CDs: Check The Fine Print

    These offer higher returns than regular certificates of deposit, but there's a catch.
  4. Investing

    Getting Certificates of Deposit (CDs) in Emerging Markets: Risks and Rewards

    Learn about the risks and rewards associated with investing in a certificate of deposit (CD) offered by an emerging market and what to consider before buying.
  5. Investing

    CDs or Bonds: Which Investment is Better For You

    When choosing between CDs and bonds, investors who seek to maximize their returns but also want a large measure of safety should consider the following:
RELATED FAQS
  1. Can certificates of deposit (CDs) lose value?

    CDs are FDIC insured, so they do not lose face value, though broker-issued CD accounts do carry risks. Read Answer >>
  2. How safe an investment is a certificate of deposit?

    Discover certificates of deposit, their basic makeup and numerous variations, and understand why they are some of the safest ... Read Answer >>
Hot Definitions
  1. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
  2. Hard Fork

    A hard fork (or sometimes hardfork) is a radical change to the protocol that makes previously invalid blocks/transactions ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  5. Zero Day Attack

    Zero Day Attack is an attack that exploits a potentially serious software security weakness that the vendor or developer ...
  6. Effective Tax Rate

    The average rate at which an individual or corporation is taxed. The effective tax rate for individuals is the average rate ...
Trading Center