What is a Certificate of Deposit and How Does It Work in Singapore

Written by
Daniel Ling
Last Modified on
December 19, 2023

What Is a Certificate of Deposit?

A Certificate of deposit (CD) is one of the special savings accounts that banks or credit unions offer. You deposit your money for a fixed period, typically six months to a year, and earn interest. The interest rate on the certificate of deposit is fixed. This is a low-risk way to save and earn extra money, as the government guarantees your funds' safety up to a specific limit in case of a bank failure.

Similarly, a business certificate of deposit in Singapore is tailored to suit your business's needs, providing a secure and predictable way to grow your funds over the agreed-upon term. Certificate of deposits offer a predictable return at low risk, ensuring your money's safety. They are backed by financial institutions and possibly insured by the government, providing a safe avenue for principal protection. It's a hassle-free way to diversify investments and earn interest on idle cash.

Here’s How a Business Certificate of Deposit Works:

  • As a business owner, it starts with making a specific deposit, which becomes your principal investment.
  • With a CD, you can pick the tenure that best suits your business and gives the best certificate of deposit rates. Remember, shorter CD terms come with lower interest rates, while longer terms offer higher interest rates. 
  • You earn a fixed interest rate throughout the CD's term, typically higher than a regular savings account.
  • You can withdraw the initial deposit and the earned interest when the certificate of deposit matures. However, keep in mind that early withdrawal may result in penalties.

What Are the Different Types of CDs?

There are several types of certificates of deposit in Singapore, each with its own features and benefits. Here are some common types of CDs:

  • Traditional CD: With a traditional CD, you deposit a specific amount of money with a bank or credit union for a set period, such as six months, one year, or more. In return, the bank pays you a fixed interest rate throughout the CD's term. 
  • High-Yield CD: A high-yield CD provides an opportunity to earn a higher interest rate than regular CDs. The catch is that you might need to meet specific requirements, like a larger initial deposit or a longer-term commitment. A high-yield CD could be a suitable option to maximise your earnings.
  • Add-On CD: An add-on certificate of deposit allows you to continue adding money to the CD after your initial deposit. It's an attractive feature for those who want to contribute more funds over time without opening a new CD.
  • Bump-Up CD: A bump-up certificate of deposit gives you flexibility with your interest rate. If interest rates increase during the CD's term, you can request a higher rate for the remaining duration, enabling you to take advantage of potentially rising rates.
  • Liquid CD: Unlike most CDs that tie up your money until maturity, a liquid certificate of deposit lets you withdraw some funds without facing early withdrawal penalties. This type of certificate of deposit is suitable if you need some access to your money before the CD's term ends.
  • Zero-Coupon CD: Zero-coupon CDs are sold at a discounted price and do not pay periodic interest. Instead, they grow to their full face value over time and provide a lump-sum return when they mature. These CDs may be suitable for those who prefer a single payout at the end of the term.
  • Callable CD: With a callable certificate of deposit, the bank can "call back" it before its scheduled maturity date. If the bank exercises this option, they will return your deposited amount and any accrued interest, but you won't continue earning interest.
  • Jumbo CD: A jumbo CD is a type of CD that requires a larger initial deposit. In exchange for the higher deposit, you may enjoy a more competitive interest rate.
  • Foreign Currency CD: If you're interested in diversifying your investments, a foreign currency CD allows you to invest in a certificate of deposit denominated in a foreign currency. This option can be attractive if you expect favourable currency exchange rate movements.
  • Brokered CD: Brokered CDs are purchased through brokerage firms rather than directly from banks. These firms offer access to various certificate of deposit products from different banks, providing more choices.
  • Step-Up CD: A step-up CD offers an increasing interest rate at specific intervals during the CD's term. This can be advantageous if you anticipate interest rates to rise gradually.

However, before choosing a certificate of deposit, you must consider your business's financial goals, risk tolerance, and each type of CD's specific terms and conditions to make an informed decision. Make sure you also check the current rate on the certificate of deposit.

What Are the Reasons Businesses Open a Certificate of Deposit in Singapore?

Businesses often use CDs for various financial purposes, including:

  • Short-term Cash Reserves: Keeping excess cash in a certificate of deposit can be a convenient strategy for businesses wanting to earn interest. At the same time, ensuring funds are readily available for unexpected expenses.
  • Business Finances: Business CDs with longer terms can be part of a company's financial planning, helping to grow funds for future projects or expansion plans.
  • Risk Management: You can diversify risk and manage your business finances more effectively by incorporating CDs into your company's investment portfolios.
  • Tax Planning: In Singapore, certain business CDs held within retirement accounts like the Supplementary Retirement Scheme (SRS) offer tax advantages, with contributions being tax-deductible and interest earned being tax-free, benefiting the company's tax planning efforts.

What Are the Attributes of a Certificate of Deposit?

As a business, the attributes of a certificate of deposit (CD) include:

  • Fixed Term: When you open a certificate of deposit, you choose a predetermined term during which your funds will remain locked until maturity.
  • Fixed Interest Rate: You'll enjoy a constant interest rate that remains unchanged throughout the CD's term.
  • Low Risk: Certificates of deposit are known for being low-risk investments, often insured by the government up to certain limits, providing a secure option.
  • Principal & Return Guaranteed: Your initial deposit amount is entirely safe and protected, and you can count on a guaranteed return on your investment. 
  • Limited Liquidity: Early withdrawal from a CD may incur penalties, restricting immediate access to your funds.
  • Interest Payment Options: You have the flexibility to choose between receiving interest payments at regular intervals or letting them compound until maturity.

How Are Certificate of Deposit Rates Determined?

The Certificate of Deposit (CD) rates are typically determined by several factors, including -

  1. Market Interest Rates: Certificate of deposit rates are likely higher if market interest rates are high, and vice versa.
  2. Term Length: Generally, longer-term CDs offer higher rates than shorter-term CDs, requiring businesses to lock in their funds for a more extended period.
  3. Economic Conditions: Certificate of deposit rates may be more favourable during economic growth and stability periods.
  4. Interest Rate Environment: Central banks' monetary policies and interest rate decisions can also influence the broader interest rate environment, indirectly affecting certificate of deposit rates.
  5. Business Relationship: Some banks may offer preferential rates to businesses with a strong existing relationship, such as holding multiple accounts or substantial deposits.
  6. Bank Policies: Each bank or financial institution sets its own certificate of deposit rates based on its internal policies, competitive positioning, and desired level of deposits.
  7. Economic Outlook: Expectations for future economic conditions, inflation, and interest rate trends can also influence certificate of deposit rates.
  8. Market Competition: Competition among banks and credit unions can impact certificate of deposit rates. Financial institutions may adjust their rates to attract more business customers.

It's important to note that certificate of deposit rates can change over time, so you should regularly monitor market conditions. You should also compare the current certificate of deposit rates offered by different financial institutions to find the best certificate of deposit rates for your investment needs.

Are Certificates of Deposits Safe?

CDs offer fixed and guaranteed interest rates in Singapore, ensuring that your returns will not be reduced or subject to fluctuations throughout the CD's term, as specified in your deposit agreement with the bank or credit union.

Furthermore, CD investments for businesses in Singapore are protected by federal insurance provided by the Singapore Deposit Insurance Corporation (SDIC). This insurance coverage safeguards your funds in the event of the institution's failure, ensuring the safety and security of your business's deposits.

How to Open a Business CD in Singapore?

When opening a Business CD at a bank you haven’t previously dealt with, you will likely need to provide the same information required for opening a bank account. The necessary documents may include the following. 

1.  Business Registration Details: It includes your company's Business Registration Number (BRN) and incorporation documents.

2.  Business Licenses: If your business requires specific licenses to operate in Singapore, you may need to provide copies of these licenses.

3.  Company Ownership Information: Details about the company's shareholders, directors, and beneficial owners may be required.

4.  Identification Documents: As the business owner or authorised representative, you'll need to present valid identification documents, such as passports or NRICs (National Registration Identity Cards).

5.  Business Address Proof: Proof of the business's registered address, such as utility bills or tenancy agreements.

6.  Employer Identification Number (EIN): If applicable, provide the EIN issued by the Inland Revenue Authority of Singapore (IRAS).

The above list represents the minimum required documentation, but each bank may have specific guidelines requiring additional information. However, if you already maintain accounts with the bank where you intend to open the certificate of deposit account, you may not need to provide any additional documentation. 

What Are the Advantages of CDs?

Opting for a business CD offers several benefits compared to keeping funds in a checking or savings account.

  • Higher Interest Rates: You can enjoy higher interest rates with business CDs, leading to higher Annual Percentage Yields (APYs). This means you'll earn more interest on your bank deposits.
  • Encourages Savings: By locking the money in a certificate of deposit, you'll be less likely to spend funds meant for future needs. The withdrawal penalty is a barrier, helping you maintain your savings discipline.
  • Protection from Interest Rate Decline: Business CDs become advantageous when anticipating declining interest rates. Locking in higher rates today for an extended period safeguards you from potential future rate decreases.

What Are the Disadvantages of CDs?

Business CDs may not always be the optimal saving solution for you for the following reasons:

  • Limited Access to Funds: Your business needs can be unpredictable, and accessing funds before the certificate of deposit matures can result in costly early withdrawal penalties.
  • Potential Earning Limitations: In a rising rate environment, fixed rates on CDs may hinder you from maximising your interest earnings as savings account rates surpass locked-in certificate of deposit rates.

Certificate of Deposit vs Fixed Deposit

After comparing certificate of deposit vs fixed deposit, let's now explore commercial paper vs certificate of deposit.

Certificate of Deposit (CD) vs Commercial Paper

Corporations and financial institutions can use both to raise funds as short-term debt instruments. Still, they are generally issued for different purposes and possess unique features: 


Are You Ready to Embark On Your Business Journey in Singapore?

When starting your business in Singapore, opening a bank account is one of the first essential steps you'll take. Don't worry; there are many choices - traditional banks, neobanks, and online payment services with digital business accounts

Aspire’s user-friendly platform makes setting up and managing your money hassle-free. Your funds are safe and protected under the Payment Services Act 2019 (PSA), regulated by the Monetary Authority of Singapore (MAS). You can keep your funds in stable Singapore, known for its opportunities and stability. No matter where you're from, we're open to entities from 182+ countries — even the USA, British Virgin Islands and the Cayman Islands! 

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About the author
Daniel Ling
is a seasoned writer specialising in business finance, market trends, and industry best practices. Daniel has led thought leadership initiatives at Meta and other reputable companies for more than a decade. Daniel leverages his consumer insights and a data-driven approach to help businesses grow.
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