Negotiable Certificate of Deposit (NCD)

Definition

A negotiable certificate of deposit (NCD), often called a jumbo CD, is a bank CD issued in large denominations—minimum face value $100,000 and commonly $1 million or more. NCDs are bank-guaranteed, typically eligible for deposit insurance up to applicable limits, and can be sold in a secondary market. They are intended as short-term, low‑risk instruments for investors with large cash positions.

How NCDs work

• Term: Short-term—commonly from about two weeks up to one year.
• Denomination: Large minimum face values; interest is typically higher than smaller retail CDs.
• Interest: Rates are negotiable and reflect money-market conditions. Interest may be paid periodically (e.g., semiannually), at maturity, or the NCD may be issued at a discount.
• Liquidity: Though not usually redeemable with the issuing bank before maturity, NCDs are often tradable on a liquid secondary market, allowing holders to sell before maturity (subject to market price).
• Insurance: Deposit insurance covers NCDs up to standard limits (see “Insurance” below).

History (brief)

NCDs were introduced in 1961 to help banks attract large deposits and ease funding shortages. The creation of a secondary market quickly expanded their use among institutional investors. Over the following decades NCDs became a common short-term funding and investment vehicle for corporations, funds, insurance companies, and wealthy individuals.

Benefits

• Low credit risk for amounts within deposit‑insurance limits.
• Typically offers higher yields than comparable-term U.S. Treasury bills because they lack full government backing.
• Liquid secondary market for many issues, enabling sales before maturity.
• Negotiable terms and larger denominations suit institutional and high‑net‑worth investors.

Risks and limitations

• Not backed by the full faith and credit of the U.S. government—slightly higher credit risk than Treasuries.
• Insurance limits: amounts above insurance caps are uninsured and exposed to issuer credit risk.
• Interest-rate risk: if sold before maturity, market prices can fall when rates rise.
• Call risk: some NCDs may be callable; issuers tend to call when rates fall, forcing reinvestment at lower yields.
• Limited accessibility: large minimums generally place NCDs out of reach for most retail investors.

Insurance and protection

Deposit insurance (FDIC for banks; NCUA for many credit unions) covers eligible deposits up to the applicable limit per depositor per institution. Current standard coverage is $250,000 per depositor per insured bank. Amounts above insured limits are at the investor’s risk.

Where to buy

• Issued directly by banks and some credit unions.
• Traded on the secondary market and accessible through financial brokers and institutional dealers.

Typical investors

NCDs are most often used by institutional investors, corporations, pension funds, insurance companies, mutual funds, and high‑net‑worth individuals seeking short-term, low‑risk, interest-bearing places to park large sums.

Bottom line

NCDs are short-term, large-denomination CDs that provide higher yields than Treasuries while remaining relatively low risk for amounts within deposit-insurance limits. They combine bank guarantees with market liquidity through a secondary market, making them attractive to investors managing sizable cash positions. However, they carry credit, market, and potential call risks—especially for uninsured balances.