What is the difference between a bear CD and a bull CD?

A CD or a certificate of deposit is a savings certificate which is also a time deposit where he holder is entitled to earn interest and it can be cashed in only on or after the date of maturity along with the accrued interest.  It has a fixed interest rate and is issued by banks, credit unions, and financial institutions.  They are insured by the FDIC.  The term may vary from a month to up to five years.

What is a bear CD?

This is also a certificate of deposit whose interest rate varies inversely to the performance of some market index.  To put it simply, the interest rate increases as the value of the market index decreases.  Here the investor uses this type of a CD based on pure speculation or hedging.  The investor wants the safety cover of the CD as well as the market exposure of a bear CD.  This is called bear CD because the investor is betting on the market value going down during the life term of the CD.  The investor will use the bear CD to hedge market positions.  When the investor has a long position which is correlated to the market index then the investor will invest all the excess cash in the bear CD to offset losses in the investments in the market.

What is a Bull CD?

This is also a certificate of deposit whose interest rate varies directly to the performance of some market index.  To put it simply, the interest rate increases as the value of the market index increases.  Here the investor uses this type of a CD to make a safe investment.  The investor wants the safety cover of the CD as well as the market exposure of a bull CD.  This is called bull CD because the investor is betting on the market value going up during the life term of the CD.  The investor will use the bull CD and be involved in the stock market where there would be a low risk.  However, there is a minimum interest rate on the CD, so it can be exposed to the upswings in the market but not the lowdown.

By investing in the bull CD the holder is assured a specific percentage of the return in case there is an increase, on that particular market index and there is a guaranteed minimum rate of return.