Callable Certificate Of Deposit

DEFINITION of '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.

BREAKING DOWN '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.

RELATED TERMS
  1. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. ...
  2. Index-Linked Certificate Of Deposit

    A certificate of deposit (CD) with a return based on a specific ...
  3. Bull CD

    A certificate of deposit whose interest rate fluctuates in direct ...
  4. Bear CD

    A certificate of deposit whose interest rate fluctuates in inverse ...
  5. Zero-Coupon Certificate Of Deposit ...

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

    A certificate of deposit (CD) that is purchased through a brokerage ...
Related Articles
  1. Investing Basics

    Callable CDs: Check The Fine Print

    These offer higher returns than regular certificates of deposit, but there's a catch.
  2. Bonds & Fixed Income

    Certificates Of Deposit: Bells And Whistles (Part I)

    Beyond the basic model, there are CDs with many features. We'll explore some of the various options, beginning with add-on CDs and ending with zero-coupon CDs in the next section. Some of the ...
  3. Insurance

    Are CDs Good Protection For The Bear Market?

    Certificates of deposit promise stable income in any market, but do they deliver?
  4. Bonds & Fixed Income

    Certificates Of Deposit: Details To Consider

    The presence of inflation makes the typical CD a less attractive option for investors seeking long-term growth. While CDs do increase in value, their interest rates tend to move with inflation ...
  5. Professionals

    Cash and Equivalents

    Cash and Equivalents
  6. Bonds & Fixed Income

    Certificates Of Deposit: Maturity And Strategies

    The strategy an investor uses in choosing a particular CD from all of the available options has to do with how the money in the CD will be used and what place it has in the investor's overall ...
  7. Bonds & Fixed Income

    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.
  8. Savings

    Certificate of Deposit (CD)

    A certificate of deposit, or CD, is a common financial product sold by banks, thrift organizations and credit unions. This type of product is often called a time deposit. CDs are insured up to ...
  9. Insurance

    How To Create A Laddered CD Portfolio

    Laddered certificates of deposit offer safe capital and predictable cash flow, while bringing simplicity to your portfolio.
  10. Bonds & Fixed Income

    Certificates Of Deposit: Conclusion

    Let's recap what we've learned in this tutorial: Safety is a hallmark of the traditional certificate of deposit (CD) sold by a bank or credit union. Investors seeking a low-risk investment ...
RELATED FAQS
  1. What is considered a good interest rate for a certificate of deposit (CD)?

    Explore the various options available with certificates of deposit and discover how to find the most lucrative rates for ... Read Answer >>
  2. What are the typical durations for a certificate of deposit?

    Investing in a certificate of deposit offers individuals the ability to earn interest on idle funds with less risk than stock ... Read Answer >>
  3. How are yields taxed on a certificate of deposit (CD)?

    Learn how interest earned on a certificate of deposit is taxed and how this may reduce the total return of an investment ... Read Answer >>
  4. 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 >>
  5. Why do companies issue callable bonds?

    Learn how callable bonds work, how they include an embedded call option, and understand the additional risks that callable ... Read Answer >>
  6. Why is a premium usually paid on a callable bond?

    Understand the nature and characteristics of callable bonds, and specifically why those factors lead issuers to offer a premium ... Read Answer >>
Hot Definitions
  1. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  3. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center