Help available for people interested in certificates of deposit
Handy checklist available from Montana Securities Department
While the volatile stock market can make certificates of deposit appealing to investors, some CDs aren't what they seem. That's the message behind a checklist available from the Montana Securities Department in the State Auditor's Office.
With many elderly investors complaining they've have been misled into buying "callable" CDs with 10- to 30 -year maturities, state securities regulators hope investors will use the checklist to avoid getting stuck with something they don't want.
"Not all CDs are created equal, so investors need to ask questions and understand exactly what they're buying," said John Morrison, Montana's State Auditor and Securities Commissioner. "Callable CDs often have higher yields than traditional bank-issued CDs because they require a 10-, 20- or even 30-year commitment. Investors should be careful and ask the questions on the checklist to make sure they know what they're getting into and whether it meets their investment objectives."
The checklist contains 13 questions designed to help investors distinguish between traditional bank-issued CDs and callable CDs. Though they generally offer higher returns, there are substantial penalties for cashing callable CDs before their maturity date.
Morrison said many investors don't realize 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, as high as 30 percent, Morrison said.
Callable CDs are being marketed via newspaper ads, high-pressure telephone solicitations and direct mail. In many print ads, the CD's interest rate is trumpeted in large print while its maturity date is buried in small type and technical jargon.
Before purchasing any CD, the checklist prompts investors to learn its maturity date, where the money will be deposited, the penalties for early withdrawal, any costs associated with selling before maturity and whether the interest rate is fixed or variable.
The Montana Securities Department can provide answers to questions about investments, and the stockbroker or brokerage firm selling them. For more information call 1-800-332-6148.
Before You Buy a
Callable CD, Take Notes!
(If you don't know the salesperson, feel free to hang up!)
Before choosing any investment, it is important to determine how it will fit with your financial goals and your tolerance for risk. You should decide if it would make sense given your income and living expenses.
If you're considering purchasing a "callable" or "brokered" CD, ask the questions below when you discuss CDs offered by a broker.
- Who is the issuer of the CD?
- What is the maturity date of the CD?
- Are there call features? How do they work?
- How much of my money will I get back if I redeem the CD before maturity?
- How does this meet my investment objectives?
- What interest rate will I be paid?
- Can the interest rate change?
- What is the broker's commission?
- Are there any custodian fees?