Concept
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A certificate of deposit is a formalized type of term deposit, where the depositor is issued with a certificate indicating the deposit they have made, the deposit’s term and the amount that will be repaid to the depositor upon maturity. One can thus think of depositing money in this way as the purchasing of a certificate of deposit. Often, certificates of deposit can be traded in secondary markets (i.e., can be traded secondarily), in which case they are sometimes called negotiable certificates of deposit.
Negotiable certificates of deposit mean that, in addition to purchasing them from a deposit- accepting bank in the way we have described (a primary purchase), one can also purchase negotiable certificates of deposit from another party who originally purchased them. Equally, a party can also sell their negotiable certificate of deposit. These types of trades involving
secondary parties which occur after the original sale, or issue of the certificate, are known as secondary trades. This also means that if a certificate of deposit can be traded secondarily, its liquidity is enhanced: instead of waiting until maturity (when the deposit is returned), the holding
party has the option of selling the certificate for immediate cash.