4.38 Certificate of Deposit (CD):
With a view to further widening the range of money market instruments and giving investors greater flexibility in the deployment of their short term surplus funds, Certificate of Deposits (CDs) were introduced in India in 1989. They are essentially securitized short term time deposits issued by banks and all-India Financial Institutions during the period of tight liquidity at relatively higher discount rates as compared to term deposits.
CDs are short-term borrowings by banks. CDs differ from term deposit (Fixed Deposits) because they involve the creation of paper, and hence have the facility for transfer and multiple ownerships before maturity.
CD rates are usually slightly higher than Fixed Deposit rates
4.39 Bill discounting:
Discounting a bill – means the bank is buying it (i.e., a Bill of Exchange or Promissory Note) before it is due and credits its value after a discount charge to the customer’s account. The transaction is an advance against the bill and the discount represents the interest on the advance from the date of purchase of the bill until it is due for payment – that is how the bank makes money on it.