Equity-Linked
CDs
An equity-linked
CD is an FDIC-insured certificate of deposit
that ties the rate of return to the performance of a stock index such as the
S&P 500 Composite Stock Price Index. The
terms of these CDs vary; typically the term is five years.
The financial institution calculates your rate of return on the
date that the CD matures based on the particular terms of the
contract. Therefore, there is no guarantee that any payment
in excess of the guaranteed payment will be paid. As with
any CD, you should understand its terms, verify whether the institution
offering the CD is reputable, and assess whether the CD is an
appropriate investment for you.
Financial institutions
offering equity-linked CDs typically emphasize that the products
protect investors from downturns in the markets because the original
principal is not at risk. The investor is risking the interest
that would otherwise be paid on the CD for the term. However,
before you invest in these CDs, you should fully understand how
their specific features may affect your return and the tax treatment
of these products. The offering institution typically outlines
this information in the term sheet and the general terms and conditions.
Source: http://www.sec.gov/answers/equitylinkedcds.htm |