In deposit terminology, the term Callable CDs refers to a Certificate of Deposit containing a call feature which can be exercised by the issuer after any call protection period expires. If the CD was called, it would then result in the return of the depositor�s funds along with any interest earned as of the call date. Callable CDs typically offer a slightly higher rate of interest than normal Certificates of Deposit.
For example, Callable CDs have a hidden cost that arises from the possibility that the issuer might call away the CD prior to its maturity date after any protection period goes away for the principal and interest due up until that point. While Callable CDs usually offer a slightly higher interest rate than normal CDs and are FDIC insured in the United States, since they often has a longer maturity date than a regular CD, the call feature gives the issuer an advantage. Basically, if interest rates drop, the issuer can call the CD and leave the investor to find an alternative place to deposit their funds in a lower interest rate environment.