Consumer Information

Industry Information


Commissioner's Corner


CSI News Archives - Year 2001
Morrison Warns Investors About "Callable" CDs

February 7, 2001
Contact: Lucas Hamilton

Morrison Warns Investors About "Callable" CDs State securities cops say elderly investors unwittingly buying long-term CDs

With stock market volatility on the rise and investors looking for safe places to park their money, some stockbrokers are pushing elderly investors to buy higher-yielding "callable" certificates of deposit with 10- to 20-year maturities, State Auditor John Morrison said today.

"Not all CDs are created equal, so investors need to ask questions and understand exactly what they're buying," said Morrison, Montana's commissioner of securities. Callable CDs often yield more than traditional bank-issued CDs, but they come with strings attached, Morrison noted. "If someone promises you an above-market return, ask lots of questions."

Federally insured certificates of deposit, sold by banks or brokers, have long served as a safe harbor for investors worried about stock market volatility. Rising interest rates and the falling stock market have made CDs more attractive, especially to older investors. But what many investors don't realize - and some stockbrokers apparently aren't adequately disclosing - is that with "callable" CDs only the issuer, and not the investor, can "call" or redeem the CD. Investors who want their money before a "callable" CD matures risk a substantial loss, regulators said.

In Iowa, for example, regulators said a retiree in her 70s invested more than $100,000 of her 97-year-old mother's money in three "callable" CDs with 20-year maturities. Her intention, she told her broker, was to use the money to pay her mother's nursing home bills. While, as in many cases, the monthly statements disclosed that the CDs were long-term, the word "callable" may have left the impression the investment could be redeemed after one year. In another case, a broker unilaterally purchased a 20-year CD worth nearly $100,000 for a 94-year-old Iowa man. After discovering the purchase, the man complained to his broker and was told not to worry because, in the event he didn't live another 20 years, the money would go to his heirs.

Similar complaints, many involving large national and regional brokerage firms as well as independent CD brokers, have been filed with state securities regulators across the country. Also receiving complaints are the Securities and Exchange Commission and the National Association of Securities Dealers. In North Dakota, an 85-year-old man was persuaded to buy a $100,000 CD with a 15-year maturity. After state regulators contacted the broker, the money was returned. In Texas, an 85-year-old retired truck driver spent $100,000 on a 20-year CD. When he tried to redeem the CD after one year, the broker gave him the option to sell - at a $30,000 loss. The broker, who still advertises the CDs in the paper, has yet to follow through on a promise to refund the original investment.

Callable CDs are marketed through newspaper ads, telephone solicitations and direct mail, regulators said. In some print ads the CD's interest rate is trumpeted in large print while the instrument's maturity date is buried in small type. Regulators are concerned that some elderly investors are vulnerable to high-pressure sales tactics and may be confused by technical jargon.

Before purchasing any CD, investors should learn its maturity date, where the money will be deposited, the penalties for early withdrawal or costs associated with selling before maturity, and whether the interest rate is fixed or variable, Morrison said. State and federal securities regulators can provide answers to questions about stockbrokers, brokerage firms or specific securities products such as "callable" CDs.

For more information visit the State Auditor's Web site at, or call the office at (406) 444-2040 or (800) 332-6148. The Federal Deposit Insurance Corp. also has information on its Web site at


<Back to Headlines of Year 2001>