Handy checklist available from state securities regulators
Washington (August 30, 2001) – 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 handy checklist now available from state securities regulators.
With many elderly investors complaining they’ve 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,” cautioned Deborah Bortner, president of the North American Securities Administrators Association, and director of Washington State’s Securities Division. “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,” said Bortner.
The fill-in-the-blank checklist consists of 13 questions designed to help investors distinguish between traditional bank-issued CDs and callable CDs. While usually offering higher returns, there are substantial penalties for redeeming callable CDs before their maturity date.
According to Bortner, many investors don’t realize that with callable CDs only the issuer, 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 – regulators warn.
Callable CDs are being marketed via newspaper ads, high-pressure telephone solicitations and direct mail, according to Bortner. In many print ads, regulators note, 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.
State securities regulators can also provide answers to questions about investments as well as the stockbroker or brokerage firm selling them.
