Investment Deposit Certificates

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					If a Callable CD is sold prior to maturity, the value of the   Structured CDs
CD will be subject to full market considerations,              Structured CDs combine the long-term growth potential           A Guide to Understanding
including, but not limited to, interest rate changes, which    of an asset or basket of assets with the safety and
could result in a significant loss from the initial
investment amount. This is true of all Brokered CDs.
                                                               security of knowing that your full principal investment
                                                               will be returned if the investment is held to maturity –        CERTIFICATES OF
However, since Callable CDs tend to have longer                often referred to as “Principal Protection”. Instead of
maturities, their price sensitivity to interest rate changes
is greater.
                                                               paying a fixed rate of interest, a Structured CD provides
                                                               a return at maturity based on the performance of an             DEPOSIT
                                                               underlying asset or basket of assets, such as a U.S. or
Types of CDs                                                   international equity market index, one or more
                                                               commodities, or virtually any other financial benchmark.
Fixed-Rate CDs                                                 Returns potentially exceeding those from other CDs are
This is the simplest, and thus most common, type of CD         achievable through Structured CDs. While the interest
structure in the marketplace. Fixed-Rate CDs can be            the investor will receive is uncertain, and could be zero,
issued as either a Non-Callable (Bullet) or as a Callable.     the return of the initial investment amount at maturity is
The CD’s coupon, or interest rate, is set at issuance and      assured, up to the applicable FDIC insurance limit,
remains the same until maturity or until the CD is called      regardless of the performance of the underlying asset(s).
by the issuing bank. Interest payments are made on             Investors in Structured CDs must evaluate the outlook
either a monthly, quarterly or semi-annual basis, or at        for the underlying asset(s). Due to limited liquidity,
maturity for issues of one year or less. Investors who         Structured CDs are not suited for short-term trading.
require consistent income may find Fixed-Rate CDs
                                                               Inflation Linked CDs
appropriate.
                                                               Inflation poses a threat for fixed-income investors
Step-Up CDs                                                    because it erodes the buying power of income received
The Step-Up CD is typically issued only in Callable form.      in the future, which, in turn, reduces a fixed-rate
It provides a variation on the simple Fixed-Rate CD by         investment’s real rate of return. Inflation-linked
offering a predetermined schedule of coupon rates,             investments pay interest based upon changes in the
which begin somewhat below that of current Fixed-Rate          Consumer Price Index (CPI) and therefore provide a
CDs and gradually increase over a specified time frame.        consistent and predictable real return.
The coupon may step-up only once or as often as                Inflation-Floater Certificates of Deposit (IFCDs) pay a
annually until the issuer calls the CD or the CD matures.      monthly coupon that changes, or “floats”, based on the
Step-Up CDs generally attract investors with                   percent change in CPI over the previous year plus a fixed
expectations of gradually rising interest rates.               spread. The variable portion of each interest payment is
                                                               meant to offset inflation, while the remainder is the real
Zero Coupon CDs
                                                               return. IFCDs may be an appropriate choice for investors
For investors who do not require current income, Zero          saving for retirement, retirees using their portfolio
Coupon CDs (ZCDs) may be worth investigating. ZCDs             income to cover living expenses or any investor seeking
are available in Bullet or Callable form. With ZCDs, there     to diversify their portfolio through the addition of a
are no coupon payments. Instead, the CDs are issued at         unique asset class.
a deep discount to their face value (par) and then
gradually accumulate interest due until they reach par at
maturity and are retired. With ZCDs, there is no need to                  Call your financial consultant:
reinvest periodic coupon payments - a plus for investors                 Ask how Certificates of Deposit
who are saving for future expenditures such as
                                                                   can be part of your investment future today!
education or retirement. Note that interest earned on
ZCDs is taxable each year, even though it is not received
until maturity.




                                                                                                              CD-200 (12/07)
Certificates of Deposit (CDs) and                              an opportunity for investors to sell their CDs at the                        Non-Callable and Callable CDs
                                                               prevailing market levels, which may be worth more or
Brokered CDs                                                   less than the original amount invested.                                      Non-Callable (Bullet) CDs
What are Certificates of Deposit?                                                                                                           The most basic type of Brokered CD has a fixed (Bullet)
                                                               Brokered CD Advantages                                                       maturity date. Maturities generally range from three (3)
Bank deposits have a special role in the economy as a
significant source of funds for banks, savings and loans       Wider selection of issuers                                                   months to ten (10) years. Non-Callable CDs are available
and thrifts.     Banks lend money to businesses,                                                                                            in Fixed-Rate or Zero Coupon structures.
                                                               Through Brokered CDs, investors have access to CDs
homeowners, corporations and others for years at a time.       from many institutions across the country. Investors can                     Callable Certificates of Deposit
In order to balance their assets versus liabilities, they      choose from a wide selection of maturities and coupon                        Callable Certificates of Deposit are CDs that can be
must also attract funds that will remain on deposit for a      frequencies to find the appropriate CD best suited to                        called only by the issuing bank prior to maturity. In
fixed term.                                                    their particular investment requirements, and also have                      order to achieve flexibility in managing their balance
Certificates of Deposit (CDs) are, quite simply, “time         the opportunity to thoroughly research for the highest                       sheets, banks reward CD investors with a higher rate of
deposits” that earn a contractual rate of interest over a      yield in the market.                                                         interest on Callable CDs in return for the right to call, or
specified period of time. Investors agree to lend money                                                                                     pay back, the investors’ principal prior to the stated
                                                               FDIC coverage
to a bank for a fixed period of time and, in return,                                                                                        maturity date (at the bank’s discretion only). Callable CDs
investors receive a stated rate of interest, paid in various   The basic insurance amount is $100,000 per depositor
                                                                                                                                            are offered in a wide range of maturities, typically three
installments, over the life of that “loan”. Because            per insured bank.
                                                                                                                                            (3) to twenty (20) years. The non-call, or “lockout”
investors give up the right to withdraw their money at         If an investor or their family has deposits at one insured                   period, (the time during which an issuer cannot call the
any time, they receive a higher interest rate than on          bank totaling more than $100,000, they should know that                      CD) is usually one (1) to five (5) years. Callable CDs are
demand accounts, such as savings or money market               different ownership categories of accounts are                               available in Fixed-Rate, Step-Up and Zero Coupon
accounts.                                                      separately insured.                                                          structures.
What are Brokered CDs?                                         Investors may qualify for more than $100,000 in
                                                                                                                                            What causes a Callable CD to be called?
                                                               coverage at one insured bank if they own deposit
Most investors are familiar with the type of CDs that can                                                                                   After the initial non-call period, the issuing bank has the
                                                               accounts in different ownership categories.
be purchased at a local bank branch. Many banks are                                                                                         right (but not the obligation) to call the CD for any reason
highly motivated to gain depositors beyond local walk-in       In addition, federal law provides up to $250,000 in                          prior to its stated maturity. As a practical matter, an
customers. As a result, numerous banks utilize the             deposit insurance coverage for self-directed retirement                      issuer will generally decide to call a CD when it
nationwide brokerage community for distribution of CDs.        accounts, such as Individual Retirement Accounts (IRAs).                     determines that market conditions are such that it can
CDs obtained in this manner are referred to as Brokered        Investors can obtain expanded FDIC coverage by                               issue a new CD at a lower rate than the existing CD.
CDs. Like CDs purchased at a bank, or any other bank           purchasing CDs from multiple issuing institutions.1                          Investors considering an investment in Callable CDs
deposit, Brokered CDs are backed by the full faith and                                                                                      should note that it is unlikely that they would be able to
credit of the U.S. Government through Federal Deposit          Rich structure variety                                                       replace their called CD with one that pays an equivalent
Insurance Corporation (FDIC) insurance.1                       Brokered CDs are available in a variety of structures,                       interest rate under this scenario.
Brokered CDs are simply Certificates of Deposit of banks       such as Bullet, Callable, Fixed-Rate, Step-Up, Market
                                                               Index Linked and Zero Coupon (“ZCD”). Interest                               What are the risks of Callable CDs?
sold through financial consultants. CD transactions can
be easily executed within a brokerage account with just        payments may be made on either a monthly, quarterly or                       Callable CDs are typically issued with longer maturities.
a phone call to a financial consultant. Investors do not       semi-annual basis or at maturity in the case of ZCDs and                     Hence, investors should purchase a Callable CD only if
receive physical certificates for their Brokered CDs, but      issues of one year or less.                                                  they understand that the timing of the return of principal
instead receive a periodic account statement detailing                                                                                      may be uncertain due to the call feature and may, in fact,
                                                               Estate feature                                                               be at the maturity date. Callable CDs may be paid off
their CD holdings.
                                                               A valuable feature of most Brokered CDs is commonly                          prior to the maturity as a result of a call by the issuer and,
Brokered CDs may not be suitable for all investors.            referred to as the survivor’s option, which is designed to                   in certain cases, the total return may be less than the
Please read the disclosure materials provided by your          protect estate assets. This provision allows for the full                    yield which the CD would have earned had it been held
financial consultant carefully before investing.               withdrawal of the principal and interest in the event of                     to maturity. As noted earlier, if the issuer calls the CD,
                                                               the death or adjudication of incompetence of the                             investors may be unable to reinvest the funds at an
Secondary market
                                                               beneficial owner, regardless of whether the current                          equivalent rate to the original CD. If it is not called,
CDs are most suitable for purchasing and holding to            market value has fallen. It is important to note that very                   investors should be prepared to hold the CD until
maturity. However, investors may find it necessary to          few fixed-income investments offer this attractive                           maturity.
dispose of CDs prior to maturity. An important distinction     feature.
between Brokered CDs and Bank CDs is the different
means for early redemption. Bank CDs typically carry an
early withdrawal penalty, if redeemed early. Brokered          1
                                                                   For additional information about FDIC insurance and maximizing insured
CDs are traded in the secondary market, which provides             accounts, please refer to the website www.FDIC.gov and/or the FDIC
                                                                   brochure “Insuring Your Deposits”.

				
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