DEPOSIT, CERTIFICATE OF

(CD), a receipt from a bank acknowledging the deposit of a sum of money. Among the common types are demand certificates of deposit and time certificates of deposit. Demand certificates of deposit are payable on demand, without drawing interest. They are used primarily by contractors as evidence of good faith when submitting a bid or as a guaranty of performance. They may also be used as collateral to secure a loan. Time certificates of deposit bear interest and are payable on or after a specific date. Interest on time deposits is higher than for passbook or statement savings accounts. A depositor who withdraws money deposited on a time basis before the maturity date of the certificate is subject to loss of interest. Since their introduction in the early 1960s, they have become a significant method of saving. Both types of certificates of deposit are usually negotiable, but checks may not be written against them. Treasury rate certificates of deposit, recently allowed by the United States government, pay interest according to the discount rate for U.S. Treasury bills at the time that the certificate of deposit is purchased, and the interest rate is guaranteed for the life of the certificate. Sterling certificates of deposit were first issued in 1968 and are subject to the controls of the Bank of England. In the United States, some certificates are negotiable and are acceptable as security for loans. The United States government sets a ceiling on the interest that may be offered on interest-bearing certificates of deposit.