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Understanding Negotiable Certificate of Deposit: Legal Definition and Features
Definition & Meaning
A negotiable certificate of deposit (NCD) is a type of financial instrument issued by a commercial bank. It represents a large time deposit that cannot be redeemed before its maturity date, but it can be sold or transferred to other parties. The terms, including the interest rate and maturity period, are typically negotiated when the NCD is issued. Maturities for NCDs usually range from two weeks to twelve months.
Table of content
Legal Use & context
Negotiable certificates of deposit are primarily used in the banking and finance sectors. They serve as a secure investment option for individuals and institutions looking to earn interest on their deposits. In legal practice, NCDs may be relevant in areas such as banking law, securities regulation, and investment law. Users can manage related documents and transactions using legal templates provided by platforms like US Legal Forms.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: An investor purchases a negotiable certificate of deposit from a bank for $100,000 with a maturity of six months and an interest rate of 2.5%. After three months, the investor sells the NCD to another party for $102,000. (hypothetical example)
Example 2: A corporation issues a negotiable certificate of deposit to raise funds for expansion, offering a competitive interest rate to attract investors.
State-by-state differences
Examples of state differences (not exhaustive):
State
Regulations on NCDs
California
Strict regulations on interest rates offered.
New York
Allows for shorter maturity periods.
Texas
Offers competitive rates for larger deposits.
This is not a complete list. State laws vary and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Key Differences
Certificate of Deposit (CD)
A time deposit with a fixed term and interest rate.
CDs are not negotiable and typically have penalties for early withdrawal.
Time Deposit
A deposit held for a fixed term at a bank.
Time deposits are generally not negotiable and have lower minimum amounts.
Common misunderstandings
What to do if this term applies to you
If you're considering investing in a negotiable certificate of deposit, it's important to understand the terms and conditions. Review the interest rates, maturity options, and any potential penalties for early transfer. You can explore US Legal Forms for templates that can help you manage related transactions or consult a financial advisor for personalized advice.
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