Investor Alerts & Tips

Shopping for a CD? Ask the right Questions to avoid disappointment.

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 available from state securities regulators. With many elderly investors complaining they’ve been misled into buying “callable” CDs with up to 30 -year maturities, state securities regulators hope investors will use the checklist to avoid getting stuck with an unsuitable investment. Not all CDs are created equal, so investors need to ask questions and understand exactly what they’re buying. 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 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. Investors may not 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 in some cases.  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. For more information, look in the white pages of your phone book under government, call NASAA at 202-737-0900, or check our online directory of state regulators.

07/12/04