Eurodollar certificate of deposit
Also known as: eurodollar CD
A Eurodollar certificate of deposit is a US dollar-denominated CD issued by a bank located outside the United States, often a foreign branch of a US bank. It pays interest and principal in dollars but sits outside the US banking system.
A Eurodollar certificate of deposit is a time deposit denominated in US dollars but issued by a bank outside the United States — commonly a London-based bank or the overseas branch of an American bank. Despite the name, "Euro" refers to the deposit being held offshore, not to Europe specifically or to the euro currency; a dollar CD issued in Tokyo or Singapore is still a Eurodollar CD.
These instruments are typically issued in large denominations to institutional investors and carry short maturities, often under one year. Because the deposits sit outside the US banking system, they are not FDIC insured and are not subject to Federal Reserve reserve requirements. To compensate investors for that added risk and reduced regulation, Eurodollar CDs generally pay slightly higher interest rates than comparable domestic CDs.
Eurodollar CDs matter as part of the broader Eurodollar market — the vast pool of dollar-denominated deposits held abroad that finances international trade and short-term corporate borrowing. For investors, the instruments offer money-market-level maturities with modest extra yield, in exchange for credit exposure to a foreign banking institution and the absence of US deposit insurance.
On the Series 66 exam, Eurodollar CDs appear alongside domestic bank products, Eurodollar deposits, and Eurobonds. Know the core distinctions: the security is dollar-denominated, issued outside the US, uninsured by the FDIC, and typically higher-yielding than a domestic CD of similar maturity.
Key takeaways
- A Eurodollar CD is a dollar-denominated certificate of deposit issued by a bank outside the United States.
- It is not FDIC insured and is exempt from Federal Reserve reserve requirements.
- Eurodollar CDs usually pay somewhat higher rates than comparable domestic CDs to offset the added risk.
- They are typically large-denomination, short-term instruments held by institutional investors.
- The Series 66 exam tests Eurodollar CDs alongside Eurodollar deposits and Eurobonds as international bank products.