Certificate of deposit

banking

The certificate of deposit is a financial instrument issued by a financial institution that offers a fixed return in a specified period of time.

The client of this institution invests their capital in it with a higher profitability than a commercial deposit. Certificates of Deposit began to be issued by US commercial banks in 1961.

In addition, there is a secondary market where this financial security can be exchanged. In it, the investor can sell the securities before maturity. While it is true that liquidity is less than that of other types of assets (such as shares).

Characteristics of certificates of deposit

The issuance of a certificate of deposit requires that it be attractive in terms of profitability over time. So that the agents that issue it can capture liabilities and convert them into loans. Loans that are offered at a higher interest rate, so that there is a business margin or a profit margin for the financial institution.

Today, trading certificates of deposit is rare, except in some Latin American countries where it is still a very active business. The fact that they are traded less, is that there is a great financial engineering with an important variety of very attractive products. Which, for the investor, causes greater competition and that they can opt for other types of financial products. In addition, there is great expertise on the part of financial intermediaries and companies to create new products and negotiate their peaks of cash where the distribution channels are private and, therefore, they also take market share from the large commercial banks.

In Europe, very few certificates of deposit are traded and those that are traded are issues of ADRs or certificates of deposit of shares on companies that have a presence in Latin America and that are listed in these countries.

Tags:  administration banks biography 

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