What is the difference between commercial paper and certificate of deposit?

• Certificates of deposit and commercial papers are both instruments used in the money market for different financial purposes.

• A certificate of deposit (CD) is a document issued by the bank to an investor who chooses to deposit his funds in the bank for a specific amount of time. Once the money has been deposited the depositor cannot withdraw the funds before maturity without incurring a penalty for early withdrawal.

• Commercial paper is used a substitute for a bank loan and is a short term money market instrument which matures within a period of 270 days.

• The main difference between the two forms of instruments is the time period of maturity of the two. While a CD is usually for a longer term, a promissory note is for a shorter period.