What Is a Certificate of Deposit (CD) and how do Gold-Backed CDs differ?

A certificate of deposit, or time deposit certificate (CD), is a type of savings account that requires money to remain on account, and untouched, for the duration of its term. The loss of withdrawal flexibility is compensated with a higher than normal benefit, or rate of interest. Investing in a CD is a safer and more conservative form of investment than investing in stocks and bonds.

In the case of Gold Depository Trust Bank’s CDs, the account holder’s deposit is secured by the assets of the bank which is physical gold belonging to the bank. Thus, the CD is said to be gold-backed. Instead of paying a fixed interest, the bank allows CD holders to participate in any increase in the market price of gold based on an 80%/20% share of the increase.

The Bank eliminates the risk that the market price of gold may fall below the entry price by guaranteeing to return 100% of a depositor’s initial deposit at maturity.

The bank’s ability to issue new CDs is limited to a maximum of 85% of its subscribed Tier 1 capital held in gold. When that threshold is reached the directors of the bank can either increase the bank’s Tier 1 capital held in physical gold or cease to issue new CDs.