Zero Coupon CDs
These CDs are more attractive to the investor who does not require interest payments during the term of the CD. Interest has a deep discount at the beginning of the CD term: for example, if an investor wanted the CD principal to mature at $100,000 in five years with an interest rate of 5%, the customer would initially place $79,991.23 with the bank. At its maturity, the initial investment after five years would amount to $100,000. Zero Coupon CDs can be ‘Bullets’, or Callable CDs. It should be noted, however, that interest earned on the CD is taxable each year, even though the interest is not received in the form of a check.
Fixed-Rate CDs
This is the most common and, perhaps, the simplest bank certificate of deposit available. Issued by a bank, they are both non-callable and non-transferable. The interest paid by the bank is fixed for the term of the CD. Interest payments can be monthly, quarterly, semi-annually, annually or at maturity. In addition, most fixed-rate CDs have a term from one (1) month to 30 years. Non-transferable CDs have an Early Withdrawal Penalty (EWP).
Non-Callable CDs
Also known as a ‘Bullet CD,’ they work the same as a Fixed-Rate CD, wherein the interest rate is fixed for the agreed term. A Bullet CD can also work like a Zero Coupon CD, as well.
Important Information for Regulated Institutions Banks & Credit Union
U. S. Sterling in its capacity as a CD referral service does not provide tax, legal or accounting advice or interpretations or guidance on financial transaction, or their subsequent treatment for consumer transaction. Specifically, the treatment of time deposits or other financial instruments, for entry on any financial records and for treatment thereof, for government, public or regulatory reporting purposes, U.S. Sterling its successor’s, representatives or affiliates, cannot make any representation, warranties or provide interpretive guidance. As U.S. Sterling does not provide accounting or legal advice, please contact you legal and compliance department for treatment of financial transactions and reporting requirements.
Step-Up CDs
Here, the fixed interest rate is set in advance to attract investors with the expectation of an increasing interest rate environment. Generally, there is one opportunity to step up to a higher paying interest rate for the remainder of the term, but there can be more than one step-up opportunity.
Variable CDs
For this type of CD, the interest paid may vary with a predetermined index, such as LIBOR (London Inter-Bank Offering Rate), the US Prime Bank Rate, S&P, or other indices. Generally, there is a floor and ceiling between which the rate will not exceed.