So here are the two pages I was reading to try and understand :

Negotiable Instrument and Financial Asset

Confusion started as both pages use Certificates of Deposits(CDs) as an example.So a CD is both a financial Asset and a Negotiable Instrument ?

Considering the other examples of negotiable instruments like cheque, draft,money order, traveler's cheque I understand that these instruments are basically used to make payments from one person to another or access money from your own account.

And financial assets like stock,bonds,or bank deposits are well, just assets, that is your money kept secured or invested somehow in some place and you might earn a profit from it regularly or use it to bear various expenses. Basically it's your property.

But then, how can CDs be both? Are they financial assets that can be transferred to other people if deemed necessary? Because those articles clearly mention one thing that Negotiable instruments can be transferred. Then bonds,stocks etc can be Negotiable Instruments too? Can't we have someone else as a nominee in those?

This is very confusing please explain. Thanks.


2 Answers 2


CDs are money market instruments and hence are financial asset. There are traditional and negotiable CDs.

Traditional CDs are like term deposits in banks, and are not tradable. Liquidation before maturity entails penalty charges.

Negotiable CDs can be traded in the secondary market (referred to as money market). The original holder can 'liquidate' them at prices below the face value in the market. At maturity, the holder of the negotiable CD receives the face value of the security from the issuing bank.


First, let's define both terms:

Negotiable Instrument: This is a document guaranteeing the payment of a specific amount of money, either on demand or at a set time, with the payer named on the document. Examples include checks, drafts, promissory notes, and certificates of deposit (CDs). The primary characteristic of a negotiable instrument is that it can be transferred from one person to another, provided that it is properly endorsed by the person transferring it.

Financial Asset: This is something of monetary value that you own. It can include cash, equity (like stocks), bonds, mutual funds, and yes, certificates of deposit (CDs). A financial asset is generally considered to be an investment of some kind, whether it's in the form of a cash deposit, a share of a company, a loan to a business or government (bonds), or any other form of investment.

Now, coming to your question, "how can CDs be both?"

Certificates of Deposit (CDs) are a kind of deposit account at a bank with a fixed maturity date (ranging from weeks to several years) and a fixed interest rate. The depositor can redeem the note back from the bank for the deposited amount plus interest earned when the CD matures. However, if the depositor needs to access the money before the maturity date, the CD can be sold to another person, hence it can be a negotiable instrument. The ability to sell the CD depends on the terms and conditions set by the issuing bank. Not all CDs are negotiable, it's specific to the type of CD issued.

So, CDs are financial assets because they represent a claim on the future cash flows (the deposit plus the interest), but they can also be negotiable instruments if they have been structured in such a way that they can be sold or transferred to another person. This is not common for all financial assets.

When you mention stocks and bonds, these can also be considered both financial assets and negotiable instruments. They are financial assets because they represent ownership (stocks) or a debt claim (bonds) that provides future cash flows. They are also negotiable because they can be bought or sold on the stock market or other secondary markets.

However, it's worth noting that the term "negotiable instrument" is often used more narrowly in practice, typically referring to instruments like checks, drafts, and bills of exchange, which are used for transferring money and making payments, whereas the term "financial asset" is more broadly applied to any kind of claim on future cash flows, whether that's in the form of equity, a debt claim, a deposit account, or some other form of investment.


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