what is a negotiable certificate of deposit ncd 
a negotiable certificate of deposit ncd also known as a jumbo cd is a certificate of deposit cd with a minimum face value of 100 000 though ncds are typically 1 million or more they are guaranteed by the bank and can usually be sold in a highly liquid secondary market but they cannot be cashed in before maturity because of their large denominations ncds are bought most often by large institutional investors that typically use them as a way to invest in a low risk low interest security a yankee cd is one example of an ncd understanding a negotiable certificate of deposit ncd an ncd is short term with maturities ranging from two weeks to one year interest is usually paid either twice a year or at maturity or the instrument is purchased at a discount to its face value interest rates are negotiable and yield from an ncd is dependent on money market conditions history of ncdsncds were introduced in 1961 by first national city bank of new york which is now citibank 1 the instrument allowed banks to raise funds that could be used for lending ncds were designed to ease a deposit shortage that had affected banks during the previous decade many bank depositors transferred their cash from checking accounts which did not pay interest to other investments such as treasury bills t bills commercial paper and bankers acceptances the first national city bank of new york loaned 10 million in government securities to a new york broker that agreed to accept trades in cds this created a secondary market in which the ncds could trade by 1966 investors held 15 billion in outstanding ncds that amount grew to more than 30 billion in 1970 and 90 billion in 1975 1participants in the market for ncds primarily comprise wealthy individuals and institutions such as corporations insurance companies pension funds and mutual funds the market attracts those seeking a return on cash in a low risk and liquid investment the amount up to which the fdic will insure an ncd 2advantages of ncdsone feature of the ncd is its low risk ncds are insured by the federal deposit insurance corporation fdic for up to 250 000 per depositor per bank this was increased from 100 000 in 2010 with the passage of the dodd frank wall street reform and consumer protection act 3 therefore the product attracts those who would invest in other low risk investments such as u s treasury securities that said ncds are generally considered riskier compared with t bills which are backed by the u s government s full faith and credit 4 as such ncds offer higher interest rates compared to those of treasury bills ncds offer higher interest rates than treasury bills disadvantages of ncdsmost ncds are not callable meaning the bank cannot redeem the instrument prior to the maturity date however if a bank can call the ncd it will do so when interest rates fall hence investors will have difficulty finding another ncd that pays a similar rate of interest the initial rate to the ncd holder will be higher to compensate the investor for this risk 