Yankee Certificate of Deposit (CD)

A Yankee CD is a U.S.-dollar denominated certificate of deposit issued in the United States by a branch of a foreign bank. Foreign banks use Yankee CDs to raise dollar funding from U.S. depositors. They operate much like traditional CDs but have characteristics that make them primarily suitable for larger, short-term investors.

Key takeaways

Issued in U.S. dollars by foreign bank branches operating in the U.S.
Typically aimed at larger investors with minimum denominations often around $100,000.
Generally short-term — commonly under one year — and may impose steep early-withdrawal penalties.
Not covered by FDIC insurance; carries the credit risk of the issuing foreign bank.
Sold directly by the bank or through broker-dealers.

How Yankee CDs work

A foreign bank branch issues a time deposit denominated in USD.
The investor receives interest during the term and the principal at maturity, unless they withdraw early (which may trigger penalties).
Issuers use proceeds to fund U.S. dollar lending and operations or to meet dollar-denominated obligations.
They are usually negotiable and can be sold in secondary markets if liquidity is needed, though market liquidity can vary.

Typical features

Minimum investment: often large (e.g., $100,000), making them more appropriate for institutions or high-net-worth investors.
Term length: commonly short—under one year—though terms can vary.
Interest rates: determined by market conditions and the issuer’s cost of funds and credit standing. Historically foreign issuers sometimes paid a premium, but that gap has narrowed over time.
Insurance and regulation: not insured by the FDIC; regulatory safeguards depend on the issuer’s home-country rules and the structure of the U.S. branch.

Risks and considerations

Credit risk: repayment depends on the financial strength of the foreign bank branch.
No FDIC protection: unlike many domestic CDs, Yankee CDs typically lack federal deposit insurance.
Liquidity risk: although some are negotiable, resale may be difficult or result in a loss if market conditions are unfavorable.
Minimum size and suitability: high minimums and short maturities limit accessibility for small retail investors.
Currency risk is minimal for U.S. investors because the deposit is in USD, but broader exposure exists to the issuer’s home-country banking environment.

Who might use Yankee CDs

Corporations, institutional investors, and high-net-worth individuals seeking short-term dollar investments from foreign banks.
Investors comfortable evaluating foreign-bank credit risk or who have broker access to negotiate terms.

Alternatives

Domestic bank CDs with FDIC insurance.
Treasury bills and other government short-term securities for lower credit risk and high liquidity.
Money market accounts or funds for greater accessibility and liquidity.

How to buy

Directly from the foreign bank’s U.S. branch (if it offers retail sales).
Through registered broker-dealers who distribute negotiable Yankee CDs.
Before purchasing, verify the issuer’s creditworthiness, understand any early withdrawal provisions, and confirm whether the offering is insured or uninsured.

Conclusion

Yankee CDs are a short-term, dollar-denominated funding product issued by foreign banks’ U.S. branches. They can offer competitive yields for larger investors but carry credit and liquidity risks and lack FDIC insurance. They are most appropriate for investors who need short-term dollar placements and who are comfortable evaluating and accepting the issuer’s credit exposure.