CD Useful Terms
March 16th, 2010
Useful Terms of Certificates of Deposit
Before investing in Certificates of Deposit of varying maturities and types, an investor should fully understand Certificates of Deposit terms such as: .
- Yield to Maturity (YTM):
The yield received if the Federally Insured Deposits is not called before its final maturity date and the coupons are reinvested at the current coupon rate (5.00% in the example on fixed coupon).
- Annual Percentage Yield (APY):
A uniform method of calculating the return on a deposit account, disclosed as required by the Federal Truth in Savings Act (5.00% in the example).
- Yield to First Call Date:
The yield received if the Federally Insured Deposit is called on the earliest possible call date (5.00% in the example), when issued at par or greater.
- Yields to All Call Dates:
The effective yields received at any potential call date (semiannually, 7/10/06 to 1/10/23 in the example).
- Spreads to All Payment Dates:
The spreads, or differences, between the callable, fixed-coupon Federally Insured Certificates of Deposit yields and comparable-maturity Treasury note yields, at all payment dates (semiannually, 7/10/06/ to 7/10/23 in the example).
This information gives investors a way to compare a particular callable, fixed-coupon Federally Insured Certificates of Deposits with alternative comparable-quality investments.
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