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Certificate of Deposit, Safe Investment Alternative to Emergency Fund

Certificate of Deposit, Safe Investment Alternative to Emergency Fund

Compared to other financial products, you could say that certificates of deposit are not very popular. Want to know more about certificates of deposit? Come on, let’s discuss.


  • Billet deposits and certificates of deposit are different financial products.
  • Certificates of deposit are issued in the form of certificates, without including the name of the deposit owner so that they can be traded to other parties.
  • Certificates of deposit can be used as a place to store emergency funds because they offer higher returns than savings.

Deposit as an Investment Instrument

Deposits are not new to investing. Beginner investors or those with a conservative risk profile are already familiar with this financial product.

Time deposits are deposits which can only be disbursed on certain terms and conditions.

Not only as a place to store emergency funds, but time deposits are also often used as an investment tool because they offer higher returns than savings.

Several banks currently provide digital deposits that can be opened through mobile banking and internet banking applications. If you open a deposit at a bank, usually we will be given a deposit slip as proof of ownership.

Not infrequently, the notion of deposit slips in time deposits is often confused with the term certificate of deposit. In fact, they are two different financial products.

Do you guys know what a certificate of deposit is? Curious and want to know more about a certificate of deposit? Keep reading this article.

Get to know Certificates of Deposit

Certificates of deposit or certificates of deposit are products offered by banks and credit unions that provide premium interest rates in return for customers by providing stored deposits within a certain period of time.

Certificates of deposit are also known as term certificates or abbreviated as SDB. The lack of recognition of SDB as a deposit product is partly due to the licensing provisions from Bank Indonesia (BI) which need to be met first by the bank that will raise funds by issuing SDB.

As a money market financial product, certificates of deposit are relatively safe and conservative investments compared to stocks and bonds.

Sample Certificate of Deposit.

The rate of return or yield tends to be lower.

However, with a rate of return that is not easy to change and guaranteed to make a financial product that is in demand both for investment and for saving emergency funds when economic conditions are not good.

To quote the OJK’s attitude to money page:

Certificates of deposit are deposits issued with maturities of 1,3,6 and 12 months. Interest payments on certificates of deposit can be made in advance, monthly or at maturity.

The difference with time deposits that we are usually familiar with is that certificates of deposit are issued for performance in the form of certificates, without including the name of the deposit owner. Therefore, this certificate of deposit can be traded to other parties.

That is one of the advantages of having a certificate of deposit, namely that the certificate of deposit offers flexibility because it can be transferred.


Opening a Certificate of Deposit

Choosing financial instruments to realize financial goals cannot be arbitrary. Suppose you want to go on vacation, departing from Jakarta to Bali. After determining the destination, then you need to think about what mode of transportation you will use.

Just like we do in investing, determine the financial goals and then choose what instruments are suitable for the goals and target time to be achieved.

If you want to look for long-term goals, we can choose high yields such as stocks. However, for the short term, there is no need to pursue returns , because the focus is precisely on safety from the risk of fluctuations in value.

While certificates of deposit do not offer high-yield investment growth potential, they also do not carry any downside risk. That’s why many use certificates of deposit to store emergency funds.

You can open a certificate of deposit at a bank or credit union . At some banks, certificates of deposit are offered in a certain nominal value, for example at Bank Mandiri the nominal fractions of the Certificate of Deposit offered are:

  • $1,743.6 – $34,868.24
  • $3,486.98 – $69,745.10
  • $6,973.97 – $174.187,50
  • $17,434.12 – $348,645.19

The tenor of the certificate of deposit offered can be chosen based on your needs, starting from 1,2,3,4,5,6,9, and 12 months.

As we discussed earlier, these financial products are very flexible. Because it does not include the name of the owner, the certificate of deposit can be transferred or traded at a discount to another party or to a bank.

Certificate of Deposit Interest Calculation Formula

After knowing where to open a certificate of deposit product, then of course the next concern is related to the returns that can be obtained from these investment products.

Here’s how to calculate the sale of certificates of deposit by a bank at a discount using the true discount formula as follows:

the true discount formula


  • P = proceed
  • Face Value = nominal value of Certificate of Deposit
  • r = interest rate
  • t = maturity period (tenor)

For example, assume the interest rate offered by Bank A for certificates of deposit is 15%. The nominal value of the certificate of deposit is IDR 10 million and the maturity period is 90 days.

Then the calculation is as follows:

So, if you want to buy a certificate of deposit with a value of $697.54, you don’t need to pay $697.54, but $672.05.

Then, at maturity (90 days) the bank will pay my friend Financial the value of a certificate of deposit, which is IDR 10 million.

Things that must be considered

Every financial product has advantages and risks that must be borne. Then for the certificate of deposit, here are the things that must be considered before you decide to buy the product.

#1 Interest Rate

The interest rate set by the issuing bank or financial institution for the certificate of deposit must be positive. That way, it can provide a clear and predictable rate of return over a certain period of time.

#2 Timeframe

The tenor or maturity period of the certificate of deposit must be a concern.

Because certificates of deposit are issued based on a certain period of time, disbursement can only be done when the maturity date has been reached to avoid penalties.

#3 Publishing Institution

No less important that must be considered are institutions such as banks that issue certificates of deposit.

Although deposits at financial institutions such as banks are guaranteed by the Deposit Insurance Corporation (LPS), you still need to pay attention to the bank where you put your deposits.

Make sure that your deposit products meet the terms and conditions according to the policies of the IDIC, so that if something unexpected happens in the future, the funds you save are safe and can be disbursed.

Diversification of Investment Instruments

There is a well-known phrase in the investment world, namely “ Don’t put your eggs in one basket ”. Not putting all investment assets in one place is a wise move in investing.

We cannot predict what market conditions will be in the future. Neither what industry will rise, as well as global economic conditions.

Diversify your assets. Also do this principle to separate each financial goal based on the target timeframe you want to aim for.

For emergency funds or short-term financial goals, you can choose a certificate of deposit as one of the product options. As for other time targets, it can be adjusted again according to their respective risk profiles.

The most important thing is to understand the product you want to buy, not only looking for money but also the risks.

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