Callable Certificate Of Deposit

外汇网2021-06-19 23:56:52 53

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 pset call price.

|||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 pmium 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 pmium to stop paying the higher rate.

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