DEFINITION of 'Yankee CD'

A Yankee CD is a certificate of deposit (CD) that is issued in the United States by a branch or agency of a foreign bank. A Yankee CD is a foreign certificate of deposit denominated in U.S. dollars, issued in the U.S. to American investors. A foreign company can raise capital from U.S. investors by issuing Yankee CDs.

BREAKING DOWN 'Yankee CD'

A traditional certificate of deposit (CD) is a savings account that pays interest until it matures, at which point, the investor or depositor can access his or her funds. Although it is still possible to withdraw money from a CD prior to the maturity date, this action will often incur a penalty. This penalty is referred to as an early withdrawal penalty, and the total dollar amount depends on the length of the CD as well as the issuing institution. The term of a CD generally ranges from one month to five years.

Yankee CDs are negotiable instruments, and most have a minimum face value of $100,000, making them appropriate for large investors. Unlike traditional CDs that can be cashed before maturity for a small penalty, Yankee CDs usually cannot be cashed in prior to their date of maturity. If they are cashed in before maturity, the penalty can be substantial. Yankee CDs are usually issued in New York by foreign banks with branches in the U.S., and, in particular, New York.

For example, in order to raise capital from American investors, a Canadian bank chooses to issue a CD in the United States. The bank in Canada has a branch in the U.S. and partners with an American bank to issue CDs denominated in U.S. dollars in the U.S. The bank has, in effect, issued a Yankee CD. The Canadian bank issuer pays a fixed or floating rate of interest to investors of the CDs and at maturity, repays the principal of the loan amount. At maturity, the CD is redeemed by presenting the certificate to the issuing bank followed by a payment from the issuing bank to the investor's custodian bank. By borrowing through this debt instrument the foreign bank gains access to the American market and investors, and also the currency and geographic diversification that the domestic market brings.

A Yankee CD is an unsecured short-term obligation of the issuer. It is sold directly by issuers or through one or more registered broker-dealers which may or may not be affiliated with the issuer. Yankee CDs generally yield more than issues by domestic banks.

The major issuers of Yankee CDs are the New York branches of the well-known international banks of Japan, Canada, England, and Western Europe, which use the proceeds from the CDs to lend to their corporate customers in the United States.

RELATED TERMS
  1. CD Ladder

    A CD ladder is a strategy in which an investor divides the amount ...
  2. Yankee Bond

    A Yankee bond is a bond denominated in U.S. dollars that is publicly ...
  3. Callable Certificate Of Deposit

    A callable certificate of deposit is an FDIC insured certificate ...
  4. Bull CD

    A Bull CD is a certificate of deposit whose interest rate is ...
  5. Jumbo CD

    Jumbo CDs have higher denominations than regular certificate ...
  6. Fixed-Rate Certificate of Deposit

    A fixed-rate certificate of deposit (CD) is an investment instrument ...
Related Articles
  1. Investing

    How To Earn The Most From CDs When Interest Rates Are Low

    Certificates of deposit might not seem like a good place to keep your money when interest rates are low, but they do offer security and stability. And with laddering and studying promotional ...
  2. Managing Wealth

    Save Smart With A CD Ladder

    A CD Ladder allows you to stagger your investments and take advantage of higher interest rates.
  3. Managing Wealth

    How To Create A Laddered CD Portfolio

    Laddered certificates of deposit offer safe capital and predictable cash flow, while bringing simplicity to your portfolio.
  4. Investing

    Should CDs Be a Thing of the Past?

    Certificate of deposit rates remain low. Are there better alternatives?
  5. Investing

    CDs Vs. Inflation: Are They Keeping Up?

    Learn how to determine whether the money invested in certificates of deposit (CDs) can keep pace with the rate of inflation and how you measure inflation.
  6. Investing

    Callable CDs: Read the Fine Print Before Investing

    Learn about callable certificates of deposit (CDs) and how they offer higher yield returns than regular certificates of deposit, but with a catch.
  7. Investing

    6 Reasons to Beware of Market-Linked CDs

    Market-linked CDs sound great on the surface, but have a significant downside. Consider the whole picture before you invest.
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 >>
Trading Center