What is a Certificate of Deposit?
A comprehensive guide to understanding CDs and why they are one of the safest ways to grow your savings in Costa Rica.
Definition
A Certificate of Deposit (Certificado de Depósito in Spanish) is a financial product where you agree to lend money to a financial institution for a fixed period. In exchange, the institution pays you a fixed rate of interest. When the term ends (the "maturity date"), you receive your principal back plus the interest earned.
Think of it like this: You're essentially making a loan to a bank, and they pay you interest for the privilege of using your money.
How CDs Work in Costa Rica
1You Open a CD
You deposit a sum of money (principal) with a financial institution. The minimum deposit varies by institution.
2Fixed Term
You choose a term (6 months, 12 months, 24 months, etc.). During this period, your money is locked in the CD.
3Earn Interest
The bank pays you a fixed interest rate, agreed upon when you open the CD. This is guaranteed and doesn't change.
4At Maturity
When the term ends, you get your principal back plus your interest (minus taxes). You can then withdraw or reinvest.
Key Characteristics
Fixed Rate
The interest rate is locked in when you open the CD and doesn't change, regardless of market conditions.
Fixed Term
The duration is predetermined. You can't access your money without penalties until maturity.
Predictable Returns
You know exactly how much you'll earn before investing. Simple to calculate and understand.
Low Risk
CDs are backed by deposit guarantees. Your principal and interest are protected up to limits.
Flexible Terms
Options range from 6 months to 24+ months. Choose what works for your financial plan.
Taxed Interest
Interest is subject to income tax (7-15%). Banks withhold this automatically.
Types of CDs in Costa Rica
Standard CDs
Regular CDs offered by banks, cooperativas, and mutuals. Rates vary by institution and term.
Promotional CDs
Temporary offers with above-market rates. Check the expiration date before investing.
Ladder Strategy
Open multiple CDs with different maturity dates to balance liquidity and returns.
Advantages of CDs
- ✓Safe: Protected by FOGADE deposit guarantee up to 30 million colones
- ✓Predictable: Know your exact return before investing
- ✓Competitive: Higher rates than savings accounts
- ✓Simple: Easy to understand and calculate
- ✓Flexible: Various terms available
- ✓No stock market risk: Returns are fixed regardless of market conditions
Limitations to Consider
- •Liquidity: Your money is locked in until maturity
- •Early Withdrawal Penalties: You lose interest if you need funds early
- •Inflation Risk: Fixed returns may not keep pace with inflation
- •Opportunity Cost: If rates rise, your rate is locked in at the lower rate
- •Interest Risk: If rates fall, you may miss out on higher returns elsewhere
- •Taxed Returns: Income tax (7-15%) reduces your net earnings
Protection Through FOGADE
CDs in Costa Rica are protected by FOGADE (Fondo de Garantía de Depósitos), which guarantees up to 30 million colones per depositor per financial institution.
This means: If a bank fails, the government will cover your deposits (up to the limit).
Note: The guarantee applies per institution. You can have CDs at multiple banks and each is separately protected.
Ready to Invest?
Now that you understand the basics of CDs, use our tools to find the best rates and calculate your potential returns.