What Is a 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.

Key Takeaways

  • 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.
  • 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.

Understanding a 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.

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 repays the principal of the loan amount at maturity. When it reaches 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 as well as 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.