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Negotiable Certificate Of Deposit (NCD)


A Negotiable Certificate of Deposit (NCD) is a short-term debt instrument issued by financial institutions, typically banks, which is typically interest-bearing, negotiable, and has a fixed term of maturity. It is issued in bearer form and can be traded freely in the secondary market, making it more liquid than a traditional Certificate of Deposit (CD). Investors can buy NCDs to earn interest over a specified period, usually between three months and one year.


The phonetic pronunciation for “Negotiable Certificate Of Deposit (NCD)” is: Nee-ghoh-she-uh-buhl Ser-tif-i-kit Uhv Deh-paw-zit (En-see-dee)

Key Takeaways

  1. Highly Liquid Security: Negotiable Certificate Of Deposit (NCD) is a short-term debt instrument issued by banks, which can be traded in the secondary market. Its high liquidity makes it an excellent choice for investors who might need quick access to their investment.
  2. Better Returns: NCDs often provide investors with higher returns compared to other low-risk alternatives like savings accounts or Treasury bonds, making it a preferable option for investors who wish to maximize profits with minimal risk involved.
  3. Treasury Management Tool: For banks and corporations, NCDs serve as an effective treasury management tool, allowing them to manage their short-term liquidity needs efficiently. They are also an essential instrument for maintaining a stable funding source.


The Negotiable Certificate of Deposit (NCD) holds significance in business/finance as it represents a short-term debt instrument issued by financial institutions. Being “negotiable” means it can be freely bought, sold, or transferred on the secondary market before its maturity, effectively making NCDs a liquid investment, which is unique to other types of certificates of deposit. They offer a secured way for institutions to invest their money as NCDs are typically low risk and provide a fixed interest rate return. NCDs also play a crucial role in the money market, helping financial institutions manage their short-term liquidity needs. Hence, the flexibility, liquidity, and security make NCDs a valuable financial tool in the business realm.


The Negotiable Certificate of Deposit (NCD) is an effective tool used by banks to raise short to medium term funds. Essentially, NCDs are low-risk financial instruments that are capable of supplying banks with necessary funds while also providing investors with a reliable way of achieving their financial goals. Banks, for instance, can issue NCDs when they anticipate a need for funds for potential lending activities, whereas investors with excess funds can invest these funds in NCDs for a predetermined amount of time, expecting a return on their investment as prescribed by the terms of the NCDs.From an investor’s perspective, investing in an NCD can be a promising venture, because it often provides higher interest rates than other savings accounts or term deposits. Moreover, since the NCD is negotiable, it means it can easily be sold or transferred to another investor before it matures, providing the investor with a level of liquidity that traditional deposits cannot provide. This allows businesses and investors with shorter investment horizons to partake in secure, yet profitable investments in a more flexible manner. Thus, NCD serves the dual purposes of helping banks raise capital while giving investors a secure and profitable investment avenue.


Example 1: Barclays Bank Plc decides to offer a negotiable certificate of deposit to raise funds for its banking operations. They sell these NCDs to institutional investors who in turn can sell them in secondary markets if they need to free up some cash before the NCDs mature.Example 2: HSBC, a large multinational bank, needs a significant amount of short-term funding for its overseas operations. Therefore, it issues a large number of NCDs to not just cover their immediate funding requirements, but also to meet their future financial obligations. As these NCDs are negotiable, investors who buy these certificates can sell them on the secondary market if they need to realize their investments earlier.Example 3: In the context of money markets, a regional bank in Asia may issue NCDs to meet its short-term liquidity needs. These NCDs, unlike traditional CDs, are easily transferred and are often used as a short-term, low-risk investment by insurance companies or mutual funds. If the interest rates were to rise, the holders could potentially sell the NCDs on the secondary market to invest in higher-yielding assets.

Frequently Asked Questions(FAQ)

What is a Negotiable Certificate of Deposit (NCD)?

A Negotiable Certificate of Deposit (NCD) is a short-to-medium term financial instrument issued by banks to corporations, providing higher interest rates in return for a fixed-term deposit, which is negotiable and can be traded in the secondary market.

What does negotiable mean in a Negotiable Certificate of Deposit?

The term negotiable indicates that the ownership of the certificate of deposit can be transferred from one party to another, usually through the secondary market. It means you can sell your NCD instead of holding it until maturity.

How does a Negotiable Certificate of Deposit differ from a regular Certificate of Deposit?

Unlike a regular Certificate of Deposit, which is not transferrable and must be held until maturity, an NCD can be bought and sold in the secondary financial markets.

Who can invest in Negotiable Certificates of Deposit?

The initial buyers of NCDs are usually corporations, but they are also available to individual investors especially after they are in the secondary market.

How is the yield determined on a Negotiable Certificate of Deposit?

The yield on a NCD depends on the demand and supply conditions in the market, the credit quality of the issuing institution, the maturity period, and prevailing interest rates.

What are the risks associated with Negotiable Certificate of Deposit?

Like any market-based financial instrument, NCDs do come with risks. The biggest risk is that their value can fall in a rising interest rate environment. Also, they might not be easily sold in a thin or inactive market.

How liquid are Negotiable Certificates of Deposit?

Because NCDs can be bought and sold on the secondary market, they are generally considered to be a liquid asset. However, liquidity can depend on the state of the economy and market demand.

How are NCDs taxed?

The interest earned on NCDs is subject to income tax, and if they are sold for a gain, the profit is subject to capital gains tax. However, tax rules can vary between jurisdictions, so it’s vital to check local tax laws or consult with a tax advisor.

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