William Penn Life, 2003 (38. évfolyam, 1-12. szám)
2003-10-01 / 10. szám
MoneywlSe from the FDIC INVESTORS SEARCHING FOR relatively low-risk investments that can easily be converted into cash often turn to certificates of deposit (CDs). A CD is a special type of deposit account with a bank or thrift institution that typically offers a higher rate of interest than a regular savings account. Unlike other investments, CDs feature federal deposit insurance up to $100,000. Here's how CDs work: When you purchase a CD, you invest a fixed sum of money for a fixed period of time—six months, one year, five years, or more-and, in exchange, the issuing bank pays you interest, typically at regular intervals. When you cash in or redeem your CD, you receive the money you originally invested plus any accrued interest. But if you redeem your CD before it matures, you may have to pay an "early withdrawal" penalty or forfeit a portion of the interest you earned. Although most investors have traditionally purchased CD's through local banks, many brokerage firms now offer CD's. These brokerage firms —known as "deposit brokers"-can sometimes negotiate a higher rate of interest for a CD by promising to bring a certain amount of deposits to the institution. The deposit broker can then offer these "brokered CD's" to ^=TIPS_ = FOR^^ CONSUMERS their customers. At one time, most CD's paid a fixed interest rate until they reached maturity. But, like many other products in today's markets, CD's have become more complicated. Investors may now choose among variable rate CD's, long-term CD's, and CD's with special redemption features in the event the owner dies. Some long-term, high-yield CD's have "call" features, meaning that the issuing bank may choose to terminate -or call-the CD after only one year or some other fixed period of time. Only the issuing bank may call a CD, not the investor. For example, a bank might decide to call its high-yield CD's if interest rates fall. But if you've invested in a long-term CD and interest rates subsequently rise, you'll be locked in at the lower rate. Before you consider purchasing a CD from your bank or brokerage firm, make sure you fully understand all of its terms. Carefully read the disclosure statements, including any fine print. And don't be dazzled by high yields. Ask questions—and demand answers—before you invest. These tips can help you assess what features make sense for you: • Find Out When the CD Matures As simple as this sounds, many investors fail to confirm the maturity dates for their CDs and are later shocked to learn that they've tied up their money for five, 10, or even 20 years. Before you purchase a CD, ask to see the maturity date in writing. • For Brokered CD’s, Identify the Issuer Because federal deposit insurance is limited to a total aggregate amount of $100,000 for each depositor in each bank or thrift institution, it is very important that you know which bank or thrift issued your CD. In other words, find out where the deposit broker plans to deposit your money. Also be sure to ask what recordkeeping procedures the deposit broker has in place to assure your CD will have federal deposit insurance. For more information about federal deposit insurance, read the FDIC's publication Your Insured Deposit or call the FDIC's Central Call Center at (877) 275-3342 or (877) ASK-FDIC. For 4 Williu Pen Life, October 2003
