OVERVIEW
Fixed Rate Callable CDs are FDIC insured and are purchased at FISN, a brokerage firm. FISN searches nationwide for the best Callable CDs and offers these certificates of deposit for investment. Callable CDs offer higher rates but the bank has the right to return the funds early. FDIC insured banks and brokerage firms team-up to distribute insured CDs across the nation. FISN has access to the widest inventory from all major Wall Street firms. Investors select CDs that meet their needs for safety, yield and return of principal. The CD is held in a brokerage account.
PROCESS
Investors start by selecting suitable CD investments and then open a standard brokerage account at FISN in their name. A brokerage account can hold many CDs of any type, such as a laddered CD portfolio, without limit. The investor wires funds or sends a check to fund this new account. FISN sends new account paperwork and purchase confirmations to the investor. The brokerage forms are completed and the transaction confirmation is verified. Only one account needs to be opened for each ownership category. Paperwork is returned to FISN along with the required identification.
FDIC COVERAGE
Fixed Rate Callable CDs are purchased in amounts starting at $25,000. No more than the $250,000 insurance limit per ownership category should be invested in any one bank at the same time. The FDIC insurance limit has been temporarily raised to $250,000 until Dec. 31, 20013. There is no limit on the number of banks per account and multiple accounts can be opened for other ownership categories such as IRA, joint or trust accounts. FISN understands the FDIC insurance rules and helps depositors gain the best return by maximizing coverage. FDIC coverage for retirement accounts is $250,000 per bank.
CALLABLE CD FEATURES
Callable CDs have an initial non-callable term and a callable term. Callable CDs pay interest at a fixed rate over the life of the CD. The interest is paid on a semi-annual or monthly basis into the brokerage account where it can continue to earn interest in a money market fund account. At the end of the non-callable period, the CDs may be called for the full amount of the deposit. When called, the bank returns the deposit amount to the brokerage account with full interest to date. If not called, the CD remains callable usually every 6 months. Only the issuing bank of each CD can make the call decision, not the depositor or the broker. The CD will continue to pay interest for the full, possible CD term if it is never called. Key information is the name of the bank, the first call date, subsequent call dates and the final stated maturity at the end of the possible term.
Interest can be disbursed immediately or periodically via checks or electronic funds transmission straight to your local bank. Available cash also can be withdrawn from the account via checks, automatic teller machines or debit card. There may be fees for accounts with ATM or debit cards.
ID REQUIREMENTS
Brokerage accounts are opened at FISN’s brokerage division, First Internet Securities Network. Securities in FISN accounts are carried by National Financial Services LLC, Member NYSE/SIPC, a Fidelity Investments company. FISN is required under U.S. government rules to verify ownership of all accounts. Individuals are required to provide a copy of a government issued, photo identification. Business accounts, trusts and other non-individual accounts have special requirements. Some banks exclude residents of certain states from the purchase of their CDs, otherwise, there are no limits and plenty of unrestricted product is available.
FEES
There are no placement fees paid by the investor. Banks pay brokers to distribute their CDs. New issue CDs are sold at par or a price of 100.0 to the investor. Par is the face amount of the CD on which interest is earned. Some CDs may require minimum purchase amounts.
UNIQUE RISKS FOR CALLABLE CDS
Callable CDs present risks unique to that style of CD. Callable CDs pay a fixed interest rate until called. The bank can choose to make the call decision at any call date after the initial non-call period for any reason. Investors should be aware of the timing of each call date and the other terms of the CD. The risk is that the CD rate may be above prevailing market rates. If the rate is above the market and the CD is callable, the underlying CD becomes subject to Call Risk since the bank is motivated to replace the deposit with less costly funds. Reinvestment Risk arises when CDs are called, causing investors to relinquish a high rate and replace it with a lower, current market rate.
MARKET RISK
All investments including certificates of deposit (CDs) held in a securities account are subject to market risk. Market risk is always present but has no effect if CDs are held to maturity. Most CDs are purchased with the intention of holding them to maturity. This risk arises from the valuation that potential buyers in the market put on an investment that could be offered for sale. The potential risk is that the value may fall and transaction cost may be incurred if the item is put up for sale. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. It is possible that the value could rise as well and then it would be a market value gain. Market risk is an overall risk caused many factors such as interest rate movements, transaction cost and availability of purchasers.
INTEREST RATE RISK
All investments that pay interest or dividends are subject to interest rate risk. Certificates of deposit (CDs) are included since their primary purpose is to produce income in the form of interest. Interest rate risk is present if interest rates are moving up from their original level but has no effect if CDs are held to maturity. Most CDs are purchased with the intention of holding them to maturity. The rule is simple: if rates rise, the “market” value will fall. All purchasers in the secondary market demand the yield on previously issued CDs be increased to current levels before they buy them. Yields are increased by reducing the price. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. Of course, the value may rise if interest rates fall and then it would be a market value gain if sold.
SECONDARY MARKET AVAILABILITY RISK
All investments are subject to the availability of a secondary market. Income producing investments including certificates of deposit (CDs) are included particularly since they don’t trade such as stocks do on an established “stock market”. The risk is the availability of such an organized and active place to sell your investment. This risk is present if you plan to sell your investment but has no effect if CDs are held to maturity. Most CDs are purchased with the intention of holding them to maturity. FISN, though not obligated to do so, may maintain a secondary market in CDs after any initial distribution. Simply stated - buyers are needed to sell something. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. Relative values may rise if more buyers are present that can be reached in a timely and effective fashion.
CALL RISK
Callable investments including callable CDs are subject to call risk. Depositors should clearly understand all call provisions. This risk is present even if you plan to hold CD investments until maturity. The bank can “call” or redeem a CD on certain call dates prior to maturity. The bank calls the entire issue regardless of the holder. When called, the bank returns the full deposited amount with interest up to the call date. Only the bank can exercise a call, not the account holder or the broker. Banks usually call a CD when rates have fallen and they can replace the deposit at a lower rate. The risk is that, even though you get back your full deposit, when you go to reinvest your funds, it will earn a lower rate. Calls cannot be predicted even though banks consider only their own needs and costs. Call risk is difficult to evaluate for monthly statements. It is better estimated by requesting your FISN Investment Manager to seek out potential buyers for the actual investment position.
RE-INVESTMENT RISK
All fixed income investments are subject to re-investment risk. This risk is related to what you do when an investment ends, regardless of the reason. If you plan to continue investing, you have to re-enter the marketplace to find a new, replacement investment. One side of this “risk” is that rates may be lower and/or fewer products are available. The other side of this “risk” is that rates may be higher and/or more products are available. Strategies to lessen this risk is to time investment maturities close to when you might need the money or to go long when rates appear high and to go short term when rates appear low. Some investors do both by laddering the maturities between long and short terms. Longer term CDs capture higher returns from longer investments. Shorter maturities keep the remainder of your funds regularly available so rate swings are not missed.
PRINCIPAL RISK
All investments are subject to principal risk. This risk is connected to the issuer. If the financial outlook of issuer declines, the issuer’s credit rating could be downgraded or the issuer could actually default on its debt. With most debt, if the issuer is less credit worthy, the debt will fall in value. And, if the issuer cannot repay the debt at all, the investment may be near worthless. The principal value will diminish in either case. With FDIC insured CD investments these two risks are nearly non-existent. Most banks, particularly regional banks, are not rated but even if they were, it typically does not matter much because the FDIC stands behind the bank. In a default, the FDIC is still there, protecting depositors. The FDIC usually transfers deposits to a viable bank or simply returns the deposit when a bank fails. Both actions occur promptly as is required in the FDIC rules. This risk is avoided by following the FDIC rules and staying insured.
OVERVIEW
Certificates of deposit (CDs) are less liquid than trading investments such as stocks. CDs are designed to be held to maturity, rather than be bought and sold, over and over again. A CD investor can reclaim their funds by exiting a certificate of deposit through a variety of methods. Some CDs have early withdrawal rights, nearly every CD can be sold and most CDs have a payment at death feature.
EARLY WITHDRAWAL
Certificates of deposit held in brokerage accounts do not have early withdrawal rights for reasons other than death of the owner or joint owner.
CD SALE
Certificates of deposit can be sold in the secondary market for fixed income investments. This market is an “over the counter” market which is actually conducted over the telephone. There is no mechanism such as the New York Stock Exchange where orders can be entered and a sale is guaranteed. The availability of this secondary market for CDs cannot be guaranteed. And, there may not be buyers willing to pay an acceptable price if a CD is put up for sale. Also impacting the price is that CDs compete with other fixed income investments being offered at the same time. To start the CD sale process, the investor has to offer their CD for sale to their broker. The broker will consider whether the brokerage firm wants to hold the CD in its own inventory for resale at a later time or to sell it to another brokerage firm on the “street”. The broker will offer a net price to the investor for the CD. The broker and other “middle men” will build into their prices a trading incentive to cover their cost and profit objectives. The investor can accept the price or continue to hold the CD. There is no assurance how high the “bid” price will be or that this price will be close to estimated prices shown online or printed on recent statements. Prices are simply reflections of the market and business objectives of participating firms.
TRANSFERABILITY
Most CDs held in a brokerage account can be transferred between brokerage firms. The receiving firm generally requests the delivering firm to transfer cash, securities and CDs between accounts registered in the same ownership capacity. All debits and fees need to be paid prior to a transfer. Every firm has a process including minimums, fees and forms. It is not typical for certificates to be issued and sent to owners of record. Holding certificates outside the brokerage community reduces liquidity, prolongs an ownership transfer and lengthens the time for any sale.
PAYABLE ON DEATH
Certificates of deposit generally have a feature that permits CDs to be paid off following the death of an owner. The standard privileges for refunding the CD apply if the CD is owned by a single person or by a joint account of individuals. Other ownership forms used by individuals may require investigation to determine whether they fit the circumstances necessary for payment on death. Each bank has its own program since there are no government rules or standards. If applicable, the bank usually requires a death certificate and a standard form indicating the authority of a living individual to request the payment following death for the deceased person. FISN can assist survivors or estate officials in this process. The return of funds is not immediate and can take several weeks once all the paper work is submitted. If the CD is held in a brokerage account the funds are simply returned to the brokerage account. The full amount is returned with interest up to the date of withdrawal.
OVERVIEW
Step-Up Bonus Rate Callable CDs are FDIC insured and are purchased at FISN, a brokerage firm. FISN searches nationwide for the best Step-Up CDs and offers these certificates of deposit for investment. The bank pays interest at a fixed rate for each period and then the rate steps-up to a new, higher rate of interest for the next period. Callable CDs offer higher rates but the bank has the right to return the funds early. FDIC insured banks and brokerage firms team-up to distribute insured CDs across the nation. FISN has access to the widest inventory from all major Wall Street firms. Investors select CDs that meet their needs for safety, yield and return of principal. The CD is held in a brokerage account.
PROCESS
Investors start by selecting suitable CD investments and then open a standard brokerage account at FISN in their name. A brokerage account can hold many CDs of any type without limit. The investor wires funds or sends a check to fund this new account. FISN sends new account paperwork and purchase confirmations to the investor. The brokerage forms are completed and the transaction confirmation is verified. Only one account needs to be opened for each ownership category. Paperwork is returned to FISN along with the required identification.
FDIC COVERAGE
Step-Up Bonus Rate Callable CDs are purchased in amounts starting at $25,000. No more than the $250,000 insurance limit per ownership category should be invested in any one bank at the same time. The FDIC insurance limit has been temporarily raised to $250,000 until Dec. 31, 20013. There is no limit on the number of banks per account and multiple accounts can be opened for other ownership categories such as IRA, joint or trust accounts. FISN understands the FDIC insurance rules and helps depositors gain the best return by maximizing coverage. FDIC coverage for retirement accounts is $250,000 per bank.
STEP-UP CD FEATURES
Step-Up CDs pay interest at a fixed rate for each period and then step-up to a new, higher rate of interest for the next period if not called. Interest is paid on a semi-annual or monthly basis into the brokerage account where it can continue to earn interest in a money market fund account. At each step-up point these CDs are usually callable. Key information is the interest rate and dates for each step period.
CALLABLE CD FEATURES
Callable CDs have an initial non-callable term and a callable term. The interest rate is fixed up-front for each step-up period and cannot change until the next step. The interest is paid into the brokerage account where it can continue to earn interest in a money market fund account. At the end of the non-callable period, the CDs may be called for the full amount of the deposit. When called, the bank returns the deposit amount to the brokerage account with full interest to date. If not called, the CD remains callable usually every 6 months. Only the issuing bank of each CD can make the call decision, not the depositor or the broker. The CD will continue to pay interest for the full, possible CD term if it is never called. Key information is the name of the bank, the first call date, subsequent call dates and the final stated maturity at the end of the possible term.
Interest can be disbursed immediately or periodically via checks or electronic funds transmission straight to your local bank. Available cash also can be withdrawn from the account via checks, automatic teller machines or debit card. There may be fees for accounts with ATM or debit cards.
ID REQUIREMENTS
Brokerage accounts are opened at FISN’s brokerage division, First Internet Securities Network. Securities in FISN accounts are carried by National Financial Services LLC, Member NYSE/SIPC, a Fidelity Investments company. FISN is required under U.S. government rules to verify ownership of all accounts. Individuals are required to provide a copy of a government issued, photo identification. Business accounts, trusts and other non-individual accounts have special requirements. Some banks exclude residents of certain states from the purchase of their CDs, otherwise, there are no limits and plenty of unrestricted product is available.
FEES
There are no placement fees paid by the investor. Banks pay brokers to distribute their CDs. New issue CDs are sold at par or a price of 100.0 to the investor. Par is the face amount of the CD on which interest is earned. Some CDs may require minimum purchase amounts.
UNIQUE RISKS FOR STEP-UP CDs
Step-Up CDs present risks unique to that style of CD. Step-up CDs will pay an initial rate of interest for a definite period and will “step-up” to a new, higher rate. Step-up CDs have multiple rate steps at predetermined intervals. Investors should be aware of the timing and interest rates of all steps. The risk is that the stepped-up rate may be above prevailing market rates. If the rate is above the market and the CD is callable, the underlying CD becomes subject to Call Risk since the bank is motivated to replace the deposit with less costly funds. Reinvestment Risk arises when CDs are called, causing investors to relinquish a high rate and replace it with a lower current market rate. The initial rate from the first step is not the yield to maturity (YTM). The YTM on a step-up CD is always higher and will depend upon when the CD is redeemed and how many steps are actually utilized.
MARKET RISK
All investments including certificates of deposit (CDs) held in a securities account are subject to market risk. Market risk is always present but has no effect if CDs are held to maturity. Most CDs are purchased with the intention of holding them to maturity. This risk arises from the valuation that potential buyers in the market put on an investment that could be offered for sale. The potential risk is that the value may fall and transaction cost may be incurred if the item is put up for sale. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. It is possible that the value may rise as well and then it would be a market value gain. Market risk is an overall risk caused many factors such as interest rate movements, transaction cost and availability of purchasers.
INTEREST RATE RISK
All investments that pay interest or dividends are subject to interest rate risk. Certificates of deposit (CDs) are included since their primary purpose is to produce income in the form of interest. Interest rate risk is present if interest rates are moving up from their original level but has no effect if CDs are held to maturity. Most CDs are purchased with the intention of holding them to maturity. The rule is simple: if rates rise, the “market” value will fall. All purchasers in the secondary market demand the yield on previously issued CDs be increased to current levels before they buy them. Yields are increased by reducing the price. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. Of course, the value may rise if interest rates fall and then it would be a market value gain if sold.
SECONDARY MARKET AVAILABILITY RISK
All investments are subject to the availability of a secondary market. Income producing investments including certificates of deposit (CDs) are included particularly since they don’t trade such as stocks do on an established “stock market”. The risk is the availability of such an organized and active place to sell your investment. This risk is present if you plan to sell your investment but has no effect if CDs are held to maturity. Most CDs are purchased with the intention of holding them to maturity. FISN, though not obligated to do so, may maintain a secondary market in CDs after any initial distribution. Simply stated - buyers are needed to sell something. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. Relative values may rise if more buyers are present and can be reached in a timely and effective fashion.
CALL RISK
Callable investments including callable CDs are subject to call risk. Depositors should clearly understand all call provisions. This risk is present even if you plan to hold CD investments until maturity. The bank can “call” or redeem a CD on certain call dates prior to maturity. The bank calls the entire issue regardless of the holder. When called, the bank returns the full deposited amount with interest up to the call date. Only the bank can exercise a call, not the account holder or the broker. Banks usually call a CD when rates have fallen and they can replace the deposit at a lower rate. The risk is that, even though you get back your full deposit, when you go to reinvest your funds, it will earn a lower rate. Calls cannot be predicted even though banks consider only their own needs and costs. Call risk is difficult to evaluate for monthly statements. It is better estimated by requesting your FISN Investment Manager to seek out potential buyers for the actual investment position.
RE-INVESTMENT RISK
All fixed income investments are subject to re-investment risk. This risk is related to what you do when an investment ends, regardless of the reason. If you plan to continue investing, you have to re-enter the marketplace to find a new, replacement investment. One side of this “risk” is that rates may be lower and/or fewer products are available. The other side of this “risk” is that rates may be higher and more products are available. Strategies to lessen this risk are to time investment maturities close to when you might need back the money or to go long when rates appear high and to go short term when rates appear low. Some investors do both by laddering the maturities between long and short terms. Longer term CDs capture higher returns from longer investments. Shorter maturities keep the remainder of your funds regularly available so rate swings are not missed.
PRINCIPAL RISK
All investments are subject to principal risk. This risk is connected to the issuer. If the financial outlook of issuer declines, the issuer’s credit rating could be downgraded or the issuer could actually default on its debt. With most debt, if the issuer is less credit worthy, the debt will fall in value. And, if the issuer cannot repay the debt at all, the investment may be near worthless. The principal value will diminish in either case. With FDIC insured CD investments these two risks are nearly non-existent. Most banks, particularly regional banks, are not rated but even if they were, it typically does not matter much because the FDIC stands behind the bank. In a default, the FDIC is still there, protecting depositors. The FDIC usually transfers deposits to a viable bank or simply returns the deposit when a bank fails. Both actions occur promptly as is required in the FDIC rules. This risk is avoided by following the FDIC rules and staying insured.
OVERVIEW
Certificates of deposit (CDs) are less liquid than trading investments such as stocks. CDs are designed to be held to maturity rather than be bought and sold, over and over again. A CD investor can reclaim their funds by exiting a certificate of deposit through a variety of methods. Some CDs have early withdrawal rights, nearly every CD can be sold and most CDs have a payment at death feature.
EARLY WITHDRAWAL
Certificates of deposit held in brokerage accounts do not have early withdrawal rights for reasons other than death of the owner or joint owner.
CD SALE
Certificates of deposit can be sold in the secondary market for fixed income investments. This market is an “over the counter” market which is actually conducted over the telephone. There is no mechanism such as the New York Stock Exchange where orders can be entered and a sale is guaranteed. The availability of this secondary market for CDs cannot be guaranteed. And, there may not be buyers willing to pay an acceptable price if a CD is put up for sale. Also impacting the price is that CDs compete with other fixed income investments being offered at the same time. To start the CD sale process, the investor has to offer their CD for sale to their broker. The broker will consider whether the brokerage firm wants to hold the CD in its own inventory for resale at a later time or to sell it to another brokerage firm on the “street”. The broker will offer a net price to the investor for the CD. The broker and other “middle men” will build into their prices a trading incentive to cover their cost and profit objectives. The investor can accept the price or continue to hold the CD. There is no assurance how high the “bid” price will be or that this price will be close to estimated prices shown online or printed on recent statements. Prices are simply reflections of the market and business objectives of participating firms.
TRANSFERABILITY
Most CDs held in a brokerage account can be transferred between brokerage firms. The receiving firm generally requests the delivering firm to transfer cash, securities and CDs between accounts registered in the same ownership capacity. All debits and fees need to be paid prior to a transfer. Every firm has a process including minimums, fees and forms. It is not typical for certificates to be issued and sent to owners of record. Holding certificates outside the brokerage community reduces liquidity, prolongs an ownership transfer and lengthens the time for any sale.
PAYABLE ON DEATH
Certificates of deposit generally have a feature that permits CDs to be paid off following the death of an owner. The standard privileges for refunding the CD apply if the CD is owned by a single person or by a joint account of individuals. Other ownership forms used by individuals may require investigation to determine whether they fit the circumstances necessary for payment on death. Each bank has its own program since there are no government rules or standards. If applicable, the bank usually requires a death certificate and a standard form indicating the authority of a living individual to request the payment following death for the deceased person. FISN can assist survivors or estate officials in this process. The return of funds is not immediate and can take several weeks once all the paper work is submitted. If the CD is held in a brokerage account the funds are simply returned to the brokerage account. The full amount is returned with interest up to the date of withdrawal.
Non
Callable
CD Term
Possible
CD Term
Step Up
Periods
Step Up
CD Rates
Minimum
Deposit
Interest
Payment
Buy
1.0 Yrs
10.0 Yrs
Yr 1
Yr 2-10
CMS Interest Rate Steepener FDIC Insured CD
Yr 1 Interest is paid quarterly in the first year at a fixed rate of 8.00%
Yrs 2-10 For years 2 - 10 interest is paid for each quarterly period at a variable rate of 4.0 times the positive difference between the 10Yr Constant Maturity Swap (CMS) Rate and the 2Yr Constant Maturity Swap (CMS) Rate (Positive Yield Curve) as observed 2 business days before the start of the period. If the 2Yr CMS Rate is greater than the 10Yr CMS Rate (Negative Yield Curve) on the observation date no interest is paid for the entire period. Cap of 10.00%. FDIC insured.
OVERVIEW
Fixed Rate, Fixed Term CDs are FDIC insured and are purchased at FISN, a brokerage firm. FISN searches nationwide for the best CDs with a standard fixed rate and fixed maturity date and offers these certificates of deposit for investment. FDIC insured banks and brokerage firms team-up to distribute insured CDs across the nation. FISN has access to the widest inventory from all major Wall Street firms. Investors select CDs that meet their needs for safety, yield and return of principal. The CD is held in a brokerage account.
PROCESS
Investors start by selecting suitable CD investments and then open a standard brokerage account at FISN in their name. A brokerage account can hold many CDs of any type, such as a laddered CD portfolio, without limit. The investor wires funds or sends a check to fund this new account. FISN sends new account paperwork and purchase confirmations to the investor. The brokerage forms are completed and the transaction confirmation is verified. Only one account needs to be opened for each ownership category. Paperwork is returned to FISN along with the required identification.
FDIC COVERAGE
Fixed Rate, Fixed Term CDs are purchased in amounts starting at $25,000. No more than the $250,000 insurance limit per ownership category should be invested in any one bank at the same time. The FDIC insurance limit has been temporarily raised to $250,000 until Dec. 31, 20013. There is no limit on the number of banks per account and multiple accounts can be opened for other ownership categories such as IRA, joint or trust accounts. FISN understands the FDIC insurance rules and helps depositors gain the best return by maximizing coverage. FDIC coverage for retirement accounts is $250,000 per bank.
FIXED RATE, FIXED TERM CD FEATURES
This is a standard FDIC insured CD. It is held in a brokerage account and pays interest at a fixed rate over the life of the CD. The interest is paid on a semi-annual or monthly basis into the brokerage account where it can continue to earn interest in a money market fund account. There are no call provisions. The rate is fixed up-front and cannot change. The term is fixed up-front with a certain maturity date that cannot change. Key information is the name of the bank, the issue date and the maturity date.
Interest can be disbursed immediately or periodically via checks or electronic funds transmission straight to your local bank. Available cash also can be withdrawn from the account via checks, automatic teller machines or debit card. There may be fees for accounts with ATM or debit cards.
ID REQUIREMENTS
Brokerage accounts are opened at FISN’s brokerage division, First Internet Securities Network. Securities in FISN accounts are carried by National Financial Services LLC, Member NYSE/SIPC, a Fidelity Investments company. FISN is required under U.S. government rules to verify ownership of all accounts. Individuals are required to provide a copy of a government issued, photo identification. Business accounts, trusts and other non-individual accounts have special requirements. Some banks exclude residents of certain states from the purchase of their CDs, otherwise, there are no limits and plenty of unrestricted product is available.
FEES
There are no placement fees paid by the investor. Banks pay brokers to distribute their CDs. New issue CDs are sold at par or a price of 100.0 to the investor. Par is the face amount of the CD on which interest is earned. Some CDs may require minimum purchase amounts.
UNIQUE RISKS FOR FIXED RATE, FIXED TERM CDs
Fixed Rate, Fixed Term CDs present few unique risks. These CDs are traditional CDs established at a fixed rate for a fixed term. There are no steps or calls. Investors should be aware of the rate, the frequency of interest payments and the maturity date. The risk is that the CD rate may dip below the prevailing market rates. If the rate is below the market, the investor has lost the opportunity to earn a higher return. Since Early Withdraws are not available, the only way to get your investment back and capture a higher rate is to sell the CD at a market price which probably will generate a loss. Such a loss is comparable to an Early Withdraw Penalty but could be greater if rates have risen significantly.
MARKET RISK
All investments including certificates of deposit (CDs) held in a securities account are subject to market risk. Market risk is always present but has no effect if CDs are held to maturity. Most CDs are purchased with the intention of holding them to maturity. This risk arises from the valuation that potential buyers in the market put on an investment that could be offered for sale. The potential risk is that the value may fall and transaction cost may be incurred if the item is put up for sale. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. It is possible that the value may rise as well and then it would be a market value gain. Market risk is an overall risk caused many factors such as interest rate movements, transaction cost and availability of purchasers.
INTEREST RATE RISK
All investments that pay interest or dividends are subject to interest rate risk. Certificates of deposit (CDs) are included since their primary purpose is to produce income in the form of interest. Interest rate risk is present if interest rates are moving up from their original level but has no effect if CDs are held to maturity. Most CDs are purchased with the intention of holding them to maturity. The rule is simple: if rates rise, the “market” value will fall. All purchasers in the secondary market demand the yield on previously issued CDs be increased to current levels before they buy them. Yields are increased by reducing the price. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. Of course, the value may rise if interest rates fall and then it would be a market value gain if sold.
SECONDARY MARKET AVAILABILITY RISK
All investments are subject to the availability of a secondary market. Income producing investments including certificates of deposit (CDs) are included particularly since they don’t trade such as stocks do on an established “stock market”. The risk is the availability of such an organized and active place to sell your investment. This risk is present if you plan to sell your investment but has no effect if CDs are held to maturity. Most CDs are purchased with the intention of holding them to maturity. FISN, though not obligated to do so, may maintain a secondary market in CDs after any initial distribution. Simply stated - buyers are needed to sell something. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. Relative values may rise if more buyers are present and can be reached in a timely and effective fashion.
RE-INVESTMENT RISK
All fixed income investments are subject to re-investment risk. This risk is related to what you do when an investment ends, regardless of the reason. If you plan to continue investing, you have to re-enter the marketplace to find a new, replacement investment. One side of this “risk” is that rates may be lower and/or fewer products are available. The other side of this “risk” is that rates may be higher and/or more products are available. Strategies to lessen this risk are to time investment maturities close to when you might need the money back or to go long when rates appear high and to go short term when rates appear low. Some investors do both by laddering the maturities between long and short terms. Longer term CDs capture higher returns from longer investments. Shorter maturities keep the remainder of your funds regularly available so rate swings are not missed.
PRINCIPAL RISK
All investments are subject to principal risk. This risk is connected to the issuer. If the financial outlook of issuer declines, the issuer’s credit rating could be downgraded or the issuer could actually default on its debt. With most debt, if the issuer is less credit worthy, the debt will fall in value. And, if the issuer cannot repay the debt at all, the investment may be near worthless. The principal value will diminish in either case. With FDIC insured CD investments these two risks are nearly non-existent. Most banks, particularly regional banks, are not rated but even if they were, it typically does not’t matter much because the FDIC stands behind the bank. In a default, the FDIC is still there, protecting depositors. The FDIC usually transfers deposits to a viable bank or simply returns the deposit when a bank fails. Both actions occur promptly as is required in the FDIC rules. This risk is avoided by following the FDIC rules and staying insured.
OVERVIEW
Certificates of deposit (CDs) are less liquid than trading investments such as stocks. CDs are designed to be held to maturity rather than be bought and sold, over and over again. A CD investor can reclaim their funds by exiting a certificate of deposit through a variety of methods. Some CDs have early withdrawal rights, nearly every CD can be sold and most CDs have a payment at death feature.
EARLY WITHDRAWAL
Certificates of deposit held in brokerage accounts do not have early withdrawal rights for reasons other than death of the owner or joint owner.
CD SALE
Certificates of deposit can be sold in the secondary market for fixed income investments. This market is an “over the counter” market which is actually conducted over the telephone. There is no mechanism such as the New York Stock Exchange where orders can be entered and a sale is guaranteed. The availability of this secondary market for CDs cannot be guaranteed. And, there may not be buyers willing to pay an acceptable price if a CD is put up for sale. Also impacting the price is that CDs compete with other fixed income investments being offered at the same time. To start the CD sale process, the investor has to offer their CD for sale to their broker. The broker will consider whether the brokerage firm wants to hold the CD in its own inventory for resale at a later time or to sell it to another brokerage firm on the “street”. The broker will offer a net price to the investor for the CD. The broker and other “middle men” will build into their prices a trading incentive to cover their cost and profit objectives. The investor can accept the price or continue to hold the CD. There is no assurance how high the “bid” price will be or that this price will be close to estimated prices shown online or printed on recent statements. Prices are simply reflections of the market and business objectives of participating firms.
TRANSFERABILITY
Most CDs held in a brokerage account can be transferred between brokerage firms. The receiving firm generally requests the delivering firm to transfer cash, securities and CDs between accounts registered in the same ownership capacity. All debits and fees need to be paid prior to a transfer. Every firm has a process including minimums, fees and forms. It is not typical for certificates to be issued and sent to owners of record. Holding certificates outside the brokerage community reduces liquidity, prolongs an ownership transfer and lengthens the time for any sale.
PAYABLE ON DEATH
Certificates of deposit generally have a feature that permits CDs to be paid off following the death of an owner. The standard privileges for refunding the CD apply if the CD is owned by a single person or by a joint account of individuals. Other ownership forms used by individuals may require investigation to determine whether they fit the circumstances necessary for payment on death. Each bank has its own program since there are no government rules or standards. If applicable, the bank usually requires a death certificate and a standard form indicating the authority of a living individual to request the payment following death for the deceased person. FISN can assist survivors or estate officials in this process. The return of funds is not immediate and can take several weeks once all the paper work is submitted. If the CD is held in a brokerage account the funds are simply returned to the brokerage account. The full amount is returned with interest up to the date of withdrawal.
OVERVIEW
Inflation Linked CDs are FDIC insured and are purchased at FISN, a brokerage firm. FISN searches nationwide for the best Inflation Linked CDs and offers these certificates of deposit for investment. Inflation Linked CDs offer a real return above current inflation estimates. FDIC insured banks and brokerage firms team-up to distribute insured CDs across the nation. FISN has access to the widest inventory from all major Wall Street firms. Investors select CDs that they expect will provide a real return over and above inflation from a safe institution. The CD is held in a brokerage account.
PROCESS
Investors start by selecting suitable inflation linked CD investments and then open a standard brokerage account at FISN in their name. A brokerage account can hold many CDs of any type, or inflation indexed for any term, without limit. The investor wires funds or sends a check to fund this new account. FISN sends new account paperwork and purchase confirmations to the investor. The brokerage forms are completed and the transaction confirmation is verified. Only one account needs to be opened for each ownership category. Paperwork is returned to FISN along with the required identification.
FDIC COVERAGE
Inflation Linked CDs are purchased in amounts starting at $25,000. No more than the $250,000 insurance limit per ownership category should be invested in any one bank at the same time. The FDIC insurance limit has been temporarily raised to $250,000 until Dec. 31, 20013. There is no limit on the number of banks per account and multiple accounts can be opened for other ownership categories such as IRA, joint or trust accounts. FISN understands the FDIC insurance rules and helps depositors gain the best return by maximizing coverage. FDIC coverage for retirement accounts is $250,000 per bank.
INFLATION LINKED CD FEATURES
Inflation Linked CDs pay interest at a variable rate over the life of the CD. Interest is paid monthly into the brokerage account where it can continue to earn interest in a money market fund account. These CDs have a fixed term and are not callable. Each month the interest rate is recalculated in several possible ways. Typically, the CD pays interest monthly at a CD Base Rate plus the Monthly CPI Change that reflects the year-over-year change in the CPI. Alternatively, the CD interest rate can be calculated with a multiplier times the CPI change. The “change” is typically the inflation over the 12 month period ending three months ago. The Consumer Price Index (CPI) is published monthly by the U.S. Bureau of Labor Statistics. The rate for the initial period is always known prior to investment. In effect, the actual CD rate "floats" up and down with current inflation on a monthly basis. The adjustment may be positive or negative. In the event of a decrease in the CPI, the combined rate will fall but not below 0.00%. Read carefully A Guide to Understanding Floating Rate Securities which covers this type of investment. Key information is the name of the bank, the CPI index with any lag period, frequency of adjustment, the CD Base Rate or Multiplier and the maturity date. Each deal could be different so it is important to understand the details of each offer.
Interest can be disbursed immediately or periodically via checks or electronic funds transmission straight to your local bank. Available cash also can be withdrawn from the account via checks, automatic teller machines or debit cards. There may be fees for accounts with ATM or debit cards.
ID REQUIREMENTS
Brokerage accounts are opened at FISN’s brokerage division, First Internet Securities Network. Securities in FISN accounts are carried by National Financial Services LLC, Member NYSE/SIPC, a Fidelity Investments company. FISN is required under U.S. government rules to verify ownership of all accounts. Individual are required to provide a copy of a government issued, photo identification. Business accounts, trusts and other non-individual accounts have special requirements. Some banks exclude residents of certain states from the purchase of their CDs. There are only a few banks issuing this type of CD.
FEES
There are no placement fees paid by the investor. Banks pay brokers to distribute their CDs. New issue CDs are sold at par or a price of 100.0 to the investor. Par is the face amount of the CD on which interest is earned. Some CDs may require minimum purchase amounts.
UNIQUE RISKS FOR INFLATION LINKED CDs
Inflation Linked CDs present risks unique to that style of CD. These inflation protected CDs will pay an initial rate of interest for the first period, usually a month, and than adjust to a new rate each period thereafter. These CDs are not typically callable. Each CD has a predetermined Base Rate or Multiplier and an inflation adjustment formula. Investors should be aware of this inflation adjustment process and frequency. The risk is that the formula may understate inflation’s impact. If the adjusted rate is below actual inflation rates, the investor has lost the opportunity to be fully protected from inflation. Since Early Withdrawals are not available, the only way to get your investment back and capture a higher rate is to sell the CD at a market price which probably will generate a loss. Such a loss is comparable to an Early Withdrawal Penalty but could be greater if the adjustment formula is significantly out-of-line with real inflation..
MARKET RISK
All investments including certificates of deposit (CDs) held in a securities account are subject to market risk. Market risk is always present but has no effect if CDs are held to maturity. Most CDs are purchased with the intention of holding them to maturity. This risk arises from the valuation that potential buyers in the market put on an investment that could be offered for sale. The potential risk is that the value may fall and transaction cost may be incurred if the item is put up for sale. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. It is possible that the value may rise as well and then it would be a market value gain. Market risk is an overall risk caused many factors such as inflation movements, transaction cost and availability of purchasers.
SECONDARY MARKET AVAILABILITY RISK
All investments are subject to the availability of a secondary market. Income producing investments including certificates of deposit (CDs) are included particularly since they don’t trade such as stocks do on an established “stock market”. The risk is the availability of such an organized and active place to sell your investment. This risk is present if you plan to sell your investment but has no effect if CDs are held to maturity. Most CDs are purchased with the intention of holding them to maturity. FISN, though not obligated to do so, may maintain a secondary market in CDs after any initial distribution. Simply stated - buyers are needed to sell something. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. Relative values may rise if more buyers are present and can be reached in a timely and effective fashion.
RE-INVESTMENT RISK
All fixed income investments are subject to re-investment risk. This risk is related to what you do when an investment ends, regardless of the reason. If you plan to continue investing, you have to re-enter the marketplace to find a new, replacement investment. One side of this “risk” is that rates may be lower and/or fewer products are available. The other side of this “risk” is that rates may be higher and/or more products are available. Strategies to lessen this risk are to time investment maturities close to when you might need the money back or to go long when rates appear high and to go short term when rates appear low. Some investors do both by laddering the maturities between long and short terms. Longer term CDs capture higher returns from longer investments. Shorter maturities keep the remainder of your funds regularly available so rate swings are not missed.
PRINCIPAL RISK
All investments are subject to principal risk. This risk is connected to the issuer. If the financial outlook of issuer declines, the issuer’s credit rating could be downgraded or the issuer could actually default on its debt. With most debt, if the issuer is less credit worthy, the debt will fall in value. And, if the issuer cannot repay the debt at all, the investment may be near worthless. The principal value will diminish in either case. With FDIC insured CD investments these two risks are nearly non-existent. Most banks, particularly regional banks, are not rated but even if they were, it typically does not’t matter much because the FDIC stands behind the bank. In a default, the FDIC is still there, protecting depositors. The FDIC usually transfers deposits to a viable bank or simply returns the deposit when a bank fails. Both actions occur promptly as is required in the FDIC rules. This risk is avoided by following the FDIC rules and staying insured.
OVERVIEW
Certificates of deposit (CDs) are less liquid than trading investments such as stocks. CDs are designed to be held to maturity rather than be bought and sold, over and over again. A CD investor can reclaim their funds by exiting a certificate of deposit through a variety of methods. Some CDs have early withdrawal rights, nearly every CD can be sold and most CDs have a payment at death feature.
EARLY WITHDRAWAL
Certificates of deposit held in brokerage accounts do not have early withdrawal rights for reasons other than death of the owner or joint owner.
CD SALE
Certificates of deposit can be sold in the secondary market for fixed income investments. This market is an “over the counter” market which is actually conducted over the telephone. There is no mechanism such as the New York Stock Exchange where orders can be entered and a sale is guaranteed. The availability of this secondary market for CDs cannot be guaranteed. And, there may not be buyers willing to pay an acceptable price if a CD is put up for sale. Also impacting the price is that CDs compete with other fixed income investments being offered at the same time. To start the CD sale process, the investor has to offer their CD for sale to their broker. The broker will consider whether the brokerage firm wants to hold the CD in its own inventory for resale at a later time or to sell it to another brokerage firm on the “street”. The broker will offer a net price to the investor for the CD. The broker and other “middle men” will build into their prices a trading incentive to cover their cost and profit objectives. The investor can accept the price or continue to hold the CD. There is no assurance how high the “bid” price will be or that this price will be close to estimated prices shown online or printed on recent statements. Prices are simply reflections of the market and business objectives of participating firms.
TRANSFERABILITY
Most CDs held in a brokerage account can be transferred between brokerage firms. The receiving firm generally requests the delivering firm to transfer cash, securities and CDs between accounts registered in the same ownership capacity. All debits and fees need to be paid prior to a transfer. Every firm has a process including minimums, fees and forms. It is not typical for certificates to be issued and sent to owners of record. Holding certificates outside the brokerage community reduces liquidity, prolongs an ownership transfer and lengthens the time for any sale.
PAYABLE ON DEATH
Certificates of deposit generally have a feature that permits CDs to be paid off following the death of an owner. The standard privileges for refunding the CD apply if the CD is owned by a single person or by a joint account of individuals. Other ownership forms used by individuals may require investigation to determine whether they fit the circumstances necessary for payment on death. Each bank has its own program since there are no government rules or standards. If applicable, the bank usually requires a death certificate and a standard form indicating the authority of a living individual to request the payment following death for the deceased person. FISN can assist survivors or estate officials in this process. The return of funds is not immediate and can take several weeks once all the paper work is submitted. If the CD is held in a brokerage account the funds are simply returned to the brokerage account. The full amount is returned with interest up to the date of withdrawal.
CD Term
CD Adjustment
for Inflation
First Month's
CD Rate
Minimum
Deposit
Interest
Payment
Buy
5.0 Yrs
LIBOR Rate Linked CD with Fixed Rate for 1 Year
Interest is paid quarterly. The interest rate is fixed for the first year at 3.50%. For the last 4 years the rate is based upon the 3 Month US Dollar LIBOR Rate plus 1.00%. Rate is adjusted quarterly during the last 4 years and capped at 5.25%.
OVERVIEW
Jumbo CDs are FDIC insured and placed directly at banks nationwide. FISN searches nationwide for the best CD rates and offers these certificates of deposit for investment. Depositors select the Jumbo CDs that meet their needs for safety, yield and return of principal. The CD is held by the depositor.
PROCESS
The depositor selects suitable Jumbo CDs and FISN opens the new CD accounts in the depositor’s name directly at each bank and establishes the deposit terms. The depositor then wires the funds to each bank to credit each new account set up in their ownership name. Interest and ownership paperwork are mailed directly to the depositor. The depositor completes these bank deposit forms and verifies the ownership information, amount, rate and maturity date. Paperwork is returned to each bank along with the required identification.
FDIC COVERAGE
Jumbo CDs are opened in amounts no greater than the $250,000 insurance limit. No more than the $250,000 insurance limit per ownership category should be invested in any one bank at the same time. The FDIC insurance limit has been temporarily raised to $250,000 until Dec. 31, 20013. The insurance limit applies to each ownership category. Multiple ownership categories such as joint and trust accounts may afford additional FDIC insurance per bank. FISN understands the FDIC insurance system and helps depositors gain the best return by maximizing coverage. Many banks are available to stretch FDIC insurance. Usually Jumbo CDs are opened for slightly less than the FDIC insurance limit, so that both principal and interest is FDIC covered.
JUMBO CD FEATURES
Jumbo CDs pay interest at a fixed rate over the life of the CD. Interest is paid monthly at the end of each month or on the anniversary date. Each bank has it own style of paying interest and for reporting to account holders. Key information is the name of the bank and the location of the home office, the issue date and the maturity date.
ID REQUIREMENTS
Some banks have extra identification requirements or impose special conditions such as deposits limited to personal, business or institutional accounts. Many banks restrict their best Jumbo CD rates to institutional accounts only. Rates for other amounts, banks without restrictions and/or other ownership categories are available upon request. Every account will require copies of government issued, picture identifications at a minimum. Business and trust accounts will require business organizational documents.
FEES
FISN earns a placement charge on every deposit, paid either by the bank or the depositor, for the service. The depositor receives the full stated interest rate in either case. If the bank pays FISN, the CD earns the stated interest rate without reduction. Or, if the depositor pays FISN, the charge effectively reduces the stated rate and is invoiced to the customer after placement, for the full term. It reduces the effective rate for the CD by 0.25%. For example, if the CD pays 5.00%, you would earn 5.00% less 0.25% for a net of 4.75%.
UNIQUE RISKS FOR JUMBO CDs
Jumbo CDs present few unique risks. Jumbo CDs are traditional CDs established at a fixed rate for a fixed term. Depositors should be aware of the rate, the frequency of interest payments and the maturity date. Banks usually require Jumbo CDs to be in amounts of $95,000 to $100,000. The FDIC insurance limit per bank is $100,000. The typical risk is that the total exposure per bank may exceed the $100,000 limit when accrued and unpaid interest is included. This risk can be avoided by placing CDs in amounts less than the FDIC insurance limit including the possibility of several months of outstanding interest. This risk avoidance policy usually precludes doing Jumbo CDs that compound and pay interest at maturity. Interest must be disbursed monthly to avoid exceeding the FDIC limit. And, follow the FDIC rules and never exceed the per bank limit even in separate CDs. Strategies are available for families to extend FDIC insurance per bank.
INTEREST RATE RISK
All investments that pay interest or dividends are subject to interest rate risk. Certificates of deposit (CDs) are included since their primary purpose is to produce income in the form of interest. Interest rate risk is present if interest rates are moving up from the original level but has no effect if CDs are held to maturity. Most Jumbo CD investors intend to hold their CDs to maturity. The risk is that the CD rate may dip below the prevailing market rates. If the CD rate is below the market, the investor has lost the opportunity to earn a higher return. Since Early Withdrawals are usually available, the investors can calculate the penalty and compare it to the higher rate opportunity. If the penalty is less than the increased interest, especially after taxes, than the risk can be overcome by taking a penalty and earning a higher rate on a new CD.
RE-INVESTMENT RISK
All fixed income investments are subject to re-investment risk. This risk is related to what you do when an investment ends, regardless of the reason. If you plan to continue investing, you have to re-enter the marketplace to find a new, replacement investment. One side of this “risk” is that rates may be lower and/or fewer products may be available. The other side of this “risk” is that rates may be higher and/or more products are available. Strategies to lessen this risk is to time investment maturities close to when you might need the money or to go long when rates appear high and to go short term when rates appear low. Some investors do both by laddering the maturities between long and short terms. Longer term CDs capture higher returns from longer investments. Shorter maturities keep the remainder of your funds regularly available so rate swings are not missed.
PRINCIPAL RISK
All investments are subject to principal risk. This risk is connected to the issuer. If the financial outlook of issuer declines, the issuer’s credit rating could be downgraded or the issuer could actually default on its debt. With most debt, if the issuer is less credit worthy, the debt value will fall in value. And, if the issuer cannot repay the debt at all, the investment may be near worthless. The principal value will diminish in either case. With FDIC insured CD investments these two risks are nearly non-existent. Most banks, particularly regional banks, are not rated but even if they were, it typically does not matter much because the FDIC stands behind the bank. In a default, the FDIC is still there, protecting depositors. The FDIC usually transfers deposits to a viable bank or simply returns the deposit when a bank fails. Both actions occur promptly as is required in the FDIC rules. This risk is avoided by following the FDIC rules and staying insured.
OVERVIEW
Certificates of deposit (CDs) are less liquid than trading investments such as stocks. CDs are designed to be held to maturity, rather than be bought and sold, over and over again. A CD investor can reclaim their funds by exiting a certificate of deposit through a variety of methods. Some CDs have early withdrawal rights, nearly every CD can be sold and most CDs have a payment at death feature.
EARLY WITHDRAWAL
Fixed Rate Jumbo CDs almost always have early withdrawal rights although some banks limit it. There is a penalty for exercising the early withdrawal which could be substantial. Each bank has its own program for calculating the penalty since there are no government rules or standards. The penalty formula is stated in the bank’s standard disclosure available prior to deposit. Upon request the bank will compute the penalty and disclose the amount. The depositor has a choice to accept the penalty to trigger the withdrawal or reject the opportunity to withdraw the funds. The transaction can usually be done quickly, making the net proceeds available the same day.
CD SALE
Fixed Rate Jumbo CDs are not sell able nor transferable on the books of the bank where it is issued and held. A private sale is not recommended since the ownership and taxability of the interest cannot be reassigned. Jumbo CDs are unlike CDs held in a brokerage account which can be readily sold and re-registered in the name of a new owner.
TRANSFERABILITY
Fixed Rate Jumbo CDs are not transferable to another ownership capacity on the books of the bank where it is issued and held. These CDs issued directly by a bank cannot be transferred to another bank. CDs and securities held in a brokerage account can be sold and transferred.
PAYABLE ON DEATH
Certificates of deposit generally have a feature that permits CDs to be paid off following the death of an owner. The standard privileges for refunding the CD apply if the CD is owned by a single person or by a joint account of individuals. Other ownership forms used by individuals may require investigation to determine whether they fit the circumstances necessary for payment on death. Each bank has its own program since there are no government rules or standards. If applicable, the bank usually requires a death certificate and a standard form indicating the authority of a living individual to request the payment following death for the deceased person. FISN can assist survivors or estate officials in this process. The return of funds is not immediate and can take several weeks once all the paper work is submitted. If the CD is held directly at the bank which issued it the funds are simply returned to the owner(s) by mail. The full amount is returned with interest up to the date of withdrawal.
OVERVIEW
Stock Market, Index & Basket Linked CDs are FDIC insured and are purchased at FISN, a brokerage firm. FISN searches nationwide for the best CDs linked to the performance of stock market indexes and offers these certificates of deposit for investment. CD performance can also be linked to commodity and currency indexes as well. FDIC insured banks and brokerage firms team-up to distribute insured CDs across the nation. FISN has access to the widest inventory from all major Wall Street firms. Investors select CDs that they believe will capture the upside possibilities of the market while avoiding many down-side risks. The CD is held in a brokerage account.
PROCESS
Investors start by selecting suitable stock market, currency or commodity linked CD investments and then open a standard brokerage account at FISN in their name. A brokerage account can hold many CDs of any type, or linked to any index, without limit. The investor wires funds or sends a check to fund this new account. FISN sends new account paperwork and purchase confirmations to the investor. The brokerage forms are completed and the transaction confirmation is verified. Only one account needs to be opened for each ownership category. Paperwork is returned to FISN along with the required identification.
FDIC COVERAGE
Market linked CDs are purchased in amounts starting at $25,000. No more than the $250,000 insurance limit per ownership category should be invested in any one bank at the same time. The FDIC insurance limit has been temporarily raised to $250,000 until Dec. 31, 20013. Since these CDs pay interest at maturity, room must be left within the insurance limits to accommodate stock market interest earnings paid at maturity. There is no limit on the number of banks per account and multiple accounts can be opened for other ownership categories such as IRA, joint or trust accounts. FISN understands the FDIC insurance rules and helps depositors gain the best return by maximizing coverage. FDIC coverage for retirement accounts is $250,000 per bank.
STOCK MARKET CD FEATURES
Market linked CDs pay interest based upon the gain in a related stock market, commodity or currency index. Some CDs pay a minimum interest return regardless of the index gain. At maturity, the index return is calculated. If the gain exceeds the minimum interest, then the full gain is paid out. If the gain is less than the minimum, zero or even negative, just the minimum interest amount is paid. If there is no minimum interest stipulated on the CD, you receive just the positive index gain as interest, or you receive no interest if the index actually declined in value. The interest is paid at maturity into the brokerage account where it can continue to earn interest in a money market fund account. It is possible no interest could be earned over the full term if the index declines.
Stock Market CDs are linked to a variety of domestic and foreign equity indexes as well as commodity & currency indexes. Most commonly used are the U.S. stock indexes - S&P 500, NASDAQ 100 and the Dow Jones Industrial Average. Foreign indexes for stocks in Europe or Asia are often mixed with U.S. indexes to comprise a world basket investment. A wide variety of commodities and currencies can also be mixed in an investment basket. The index return is calculated in a variety of ways usually with some type of averaging. The index level on selected dates are averaged and compared to the initial index to figure the gain. Other structures look at the just the difference between the start date and the final date. Gains are often limited by caps or a maximum return. Each deal is unique. Key information is the name of the bank, the actual index used, the method of calculating the gain with any caps or floors and whether there is a minimum level of interest.
CALLABLE CD FEATURES
Most Stock Market CDs are not callable. Callable market linked CDs have the usual non-callable term and a callable term. The interest amount is fixed up-front for each call and cannot change. The longer the CD goes without being called the higher the interest amount. Interest is only paid when called, or at maturity, if not called. The interest amount at maturity usually looks at the just the index difference between the initial date and the final date near maturity. At the end of the non-callable period, the CDs may be called for the full amount of the deposit. If called, the bank returns the deposit amount to the brokerage account with interest to date. If not called, the CD remains callable based upon the scheduled call dates. Only the issuing bank of each CD can make the call decision, not the depositor or the broker. Key information is the first call date with its interest amount and subsequent call dates with their applicable interest amounts.
Interest can be disbursed via checks or electronic funds transmission straight to your local bank. Available cash also can be withdrawn from the account via checks, automatic teller machines or debit card. There may be fees for accounts with ATM or debit cards.
ID REQUIREMENTS
Brokerage accounts are opened at FISN’s brokerage division, First Internet Securities Network. Securities in FISN accounts are carried by National Financial Services LLC, Member NYSE/SIPC, a Fidelity Investments company. FISN is required under U.S. government rules to verify ownership of all accounts. Individuals are required to provide a copy of a government issued, photo identification. Business accounts, trusts and other non-individual accounts have special requirements. Some banks exclude residents of certain states from the purchase of their CDs, otherwise, there are no limits and plenty of unrestricted product is available.
FEES
There are no placement fees paid by the investor. Banks pay brokers to distribute their CDs. New issue CDs are sold at par or a price of 100.0 to the investor. Par is the face amount of the CD on which interest is earned. Some CDs may require minimum purchase amounts.
UNIQUE RISKS FOR STOCK MARKET CDs
Stock Market CDs present risks unique to that style of CD. These CDs by definition are not traditional. There is often no guaranteed interest unless a minimum interest amount is paid. The return is linked to the return of a stock market or other type index. Investors should be aware of the unique terms of each CD including which index is used and how the return is calculated and whether there are any limiting factors such as averaging, floors or ceilings. The risk is that the index may not behave as well as the market or that no interest is earned. Read the disclosure statement carefully to understand all applicable risks. Some limiting factors could enhance the return compared to the market. Unlike a stock or mutual fund, the return of original investment is FDIC insured if held to maturity.
MARKET RISK
All investments including certificates of deposit (CDs) held in a securities account are subject to market risk. Market risk is always present but has no effect if CDs are held to maturity. Most CDs are purchased with the intention of holding them to maturity. This risk arises from the valuation that potential buyers in the market put on an investment that could be offered for sale. The potential risk is that the value may fall and transaction cost may be incurred if the item is put up for sale. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. It is possible that the value may rise as well and then it would be a market value gain. Market risk is an overall risk caused many factors such as economic events, interest rate movements, transaction cost and availability of purchasers.
INTEREST RATE RISK
All investments that pay interest or dividends are subject to interest rate risk. Certificates of deposit (CDs) are included since their primary purpose is to produce income in the form of interest. Interest rate risk is present if interest rates are moving up from their original level but has no effect if CDs are held to maturity. Most CDs are purchased with the intention of holding them to maturity. The rule is simple: if rates rise, the “market” value will fall. All purchasers in the secondary market demand the yield on previously issued CDs be increased to current levels before they buy them. Yields are increased by reducing the price. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. Of course, the value may rise if interest rates fall and then it would be a market value gain if sold.
SECONDARY MARKET AVAILABILITY RISK
All investments are subject to the availability of a secondary market. Income producing investments including certificates of deposit (CDs) are included particularly since they don’t trade such as stocks do on an established “stock market”. The risk is the availability of such an organized and active place to sell your investment. This risk is present if you plan to sell your investment but has no effect if CDs are held to maturity. Most CDs are purchased with the intention of holding them to maturity. FISN, though not obligated to do so, may maintain a secondary market in CDs after any initial distribution. Simply stated - buyers are needed to sell something. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. Relative values may rise if more buyers are present and can be reached in a timely and effective fashion.
RE-INVESTMENT RISK
All fixed income investments are subject to re-investment risk. This risk is related to what you do when an investment ends, regardless of the reason. If you plan to continue investing, you have to re-enter the marketplace to find a new, replacement investment. One side of this “risk” is that rates may be lower and/or fewer products are available. The other side of this “risk” is that rates may be higher and/or more products are available. Strategies to lessen this risk are to time investment maturities close to when you might need the money back or to go long when rates appear high and to go short term when rates appear low. Some investors do both by laddering the maturities between long and short terms. Longer term CDs capture higher returns from longer investments. Shorter maturities keep the remainder of your funds regularly available so rate and market swings are not missed.
PRINCIPAL RISK
All investments are subject to principal risk. This risk is connected to the issuer. If the financial outlook of issuer declines, the issuer’s credit rating could be downgraded or the issuer could actually default on its debt. With most debt, if the issuer is less credit worthy, the debt will fall in value. And, if the issuer cannot repay the debt at all, the investment may be near worthless. The principal value will diminish in either case. With FDIC insured CD investments these two risks are nearly non-existent. Most banks, particularly regional banks, are not rated but even if they were, it typically does not’t matter much because the FDIC stands behind the bank. In a default, the FDIC is still there, protecting depositors. The FDIC usually transfers deposits to a viable bank or simply returns the deposit when a bank fails. Both actions occur promptly as is required in the FDIC rules. This risk is avoided by following the FDIC rules and staying insured.
OVERVIEW
Certificates of deposit (CDs) are less liquid than trading investments such as stocks. CDs are designed to be held to maturity rather than be bought and sold, over and over again. A CD investor can reclaim their funds by exiting a certificate of deposit through a variety of methods. Some CDs have early withdrawal rights, nearly every CD can be sold and most CDs have a payment at death feature.
EARLY WITHDRAWAL
Certificates of deposit held in brokerage accounts do not have early withdrawal rights for reasons other than death of the owner or joint owner.
CD SALE
Certificates of deposit can be sold in the secondary market for fixed income investments. This market is an “over the counter” market which is actually conducted over the telephone. There is no mechanism such as the New York Stock Exchange where orders can be entered and a sale is guaranteed. The availability of this secondary market for CDs cannot be guaranteed. And, there may not be buyers willing to pay an acceptable price if a CD is put up for sale. Also impacting the price is that CDs compete with other fixed income investments being offered at the same time. To start the CD sale process, the investor has to offer their CD for sale to their broker. The broker will consider whether the brokerage firm wants to hold the CD in its own inventory for resale at a later time or to sell it to another brokerage firm on the “street”. The broker will offer a net price to the investor for the CD. The broker and other “middle men” will build into their prices a trading incentive to cover their cost and profit objectives. The investor can accept the price or continue to hold the CD. There is no assurance how high the “bid” price will be or that this price will be close to estimated prices shown online or printed on recent statements. Prices are simply reflections of the market and business objectives of participating firms.
TRANSFERABILITY
Most CDs held in a brokerage account can be transferred between brokerage firms. The receiving firm generally requests the delivering firm to transfer cash, securities and CDs between accounts registered in the same ownership capacity. All debits and fees need to be paid prior to a transfer. Every firm has a process including minimums, fees and forms. It is not typical for certificates to be issued and sent to owners of record. Holding certificates outside the brokerage community reduces liquidity, prolongs an ownership transfer and lengthens the time for any sale.
PAYABLE ON DEATH
Certificates of deposit generally have a feature that permits CDs to be paid off following the death of an owner. The standard privileges for refunding the CD apply if the CD is owned by a single person or by a joint account of individuals. Other ownership forms used by individuals may require investigation to determine whether they fit the circumstances necessary for payment on death. Each bank has its own program since there are no government rules or standards. If applicable, the bank usually requires a death certificate and a standard form indicating the authority of a living individual to request the payment following death for the deceased person. FISN can assist survivors or estate officials in this process. The return of funds is not immediate and can take several weeks once all the paper work is submitted. If the CD is held in a brokerage account the funds are simply returned to the brokerage account. The full amount is returned with interest up to the date of withdrawal.
CD Term
Market
Index
CD Index
Return
Minimum
Interest
Minimum
Deposit
Closing
Date
Buy
6.0 Yrs
JPMorgan Efficiente (USD) Index Market Linked Deposit
Possible Index Basket Components
Developed Equity Market - 50% MSCI North America Gross Total Return, MSCI Europe Gross Total Return & MSCI Pacific Gross Total Return
Emerging Markets - 50% MSCI Emerging Markets Gross Total Return & JPMorgan Emerging Markets Bond Index Plus Composite
Alternative Investments - 50% Dow Jones - AIG Commodity Index Total Return & GPR/JPMorgan High Liquidity Global Property Index
Global Debt - 50% JPMorgan GBI Global Bond Total Return Index Hedged into US Dollars & JPMorgan Cash Index USD 3 Month
Point-to-Point Appreciation of Quarterly Rebalanced Synthetic Portfolio with 105% participation
Interest is paid at maturity based upon the gain realized in the Efficiente basket value. The JPMorgan Efficiente (USD) Index is a JPMorgan strategy that tracks the excess returns of a synthetic portfolio, selected from up to nine different indices, above the returns of the JPMorgan Cash Index USD 3 Month and offers exposure to a diverse range of assets and geographic regions.
The index basket re-balances quarterly a synthetic portfolio composed the Basket Components. The quarterly index basket composition is based upon the "modern portfolio theory" approach to asset allocation, which suggests how a rational investor should allocate their capital across the available universe of assets to maximize return for a given risk appetite. The basket is re-balanced to get the highest return based upon current conditions.
Investors should read the Term Sheet and Brochure carefully before investing. FDIC insured.
Leveraged Point-to-Point Appreciation of Monthly Rebalanced Synthetic Commodity Portfolio
Interest is paid at maturity based upon at least 105% of the gain realized in the Optimax Market-Neutral Index (ticker - CMDTOMER) over the term. The Index is rebalanced each month in order to maximize the estimated return for the synthetic portfolio without exceeding a given risk threshold.
The Optimax Market-Neutral Index references the value of a synthetic portfolio of 18 commodity constituents, each of which is a sub-index of the S&P GSCI Index and is intended to serve as a benchmark value of a particular commodity.
The Index employs a strategy that is based upon modern portfolio theory and momentum theory. The Index is rebalanced monthly utilizing algorithms to take synthetic long and short positions in the constituents based on mathematical rules. These rules reset the sum of the weights of each constituents to zero and applies certain volatility and diversification constraints. The re-balancing of the Index will generally take long synthetic positions in those constituents with positive estimated future returns and short synthetic positions in the constituents with negative estimated future returns.
Modern portfolio theory analyzes the relationship between assets contained within a portfolio and allocates the weights of those assets in an effort to obtain an "efficient" portfolio with the highest expected return for a given level of risk. Momentum theory seeks to capitalize on positive and negative trends which can be expected to continue in the future.
Investors should read the Term Sheet and Brochure carefully before investing. FDIC insured.
Interest paid at maturity based upon the absolute change in the closing value of the index. Interest is paid at the rate of change, up or down, as long as the daily closing price of the index never exceeds a rate of change greater than 27% to 32% up from the initial value or greater than 15% down from the initial value. If the closing price of the index ever breaks out of the range no interest is paid. FDIC Insured.
Interest paid at maturity based upon the absolute change in the closing value of the index. Interest is paid at the rate of change, up or down, as long as the daily closing price of the index never exceeds a rate of change greater than 40% to 50% up from the initial value or greater than 15% down from the initial level. If the closing price of the index ever breaks out of the range no interest is paid. FDIC Insured.
Annual interest is paid based upon the average gain of the 10 Large-Cap US stocks in the equally weighted basket. Each year the gain is recomputed from the initial average value to the year end average value and interest is paid if there is an applicable increase. The gain is the average change in the basket value. Annual individual stock increases are capped at 11% to 15% per year. No interest is paid if the average is down. FDIC insured.
Annual interest is paid based upon the average gain of the 10 World Large-Cap stocks in the equally weighted basket. Each year the gain is recomputed from the initial average value to the year end average value and interest is paid if applicable. The gain is the average change in the basket value. Annual individual stock increases are capped at 11% to 15% per year. No interest is paid if the average is down. FDIC insured.
At the end of each year all available Select Sector ETF indexes are observed. The Index with the BEST return from the starting level is selected for that year and the index is removed from the basket. At maturity all the BEST index percentage returns selected for each year are summed and paid out if they exceed the minimum. Returns are capped at 8% to 11% per year. Total returns over the life of the CD are capped at 48% to 66%. FDIC insured.
Annual interest is paid based upon the equally weighted average gain of the stocks in the basket. Each year the gain is recomputed from the initial average value at inception to the year end average value and interest is paid if applicable. The gain is the equally weighted average change in the basket value. Annual individual stock increases are capped at least at 12% to 16% and individual stock decreases are floored at negative 35%. No interest is paid if the average is down. FDIC insured.
Interest is paid at maturity based upon the 5 annual percentage changes up or down in index value. The Index Interest rate is the sum of the 5 periodic percentage changes up or down times the deposit amount. Each annual change is viewed from start to finish in the yearly period and any increase will be capped at 16% - 20% with no floor on the downside. In the event the sum of the annual percentages is down, no interest is paid. FDIC insured.
Basket Components Coca-Cola, General Electric, Google, Hewlett-Packard, Home Depot, Intel, JPMorgan Chase & Co., Schlumberger, United Health Group & UPS.
Semi-Annual interest is paid based upon the equally weighted average gain of the 10 US Large-Cap stocks in the basket. Every six months the gain is recomputed from the initial starting average value to each semi-annual period average value and interest is paid if there is an applicable increase. The gain is the equally weighted average change in the basket value. Semi-Annual individual stock increases are capped at 4.5% to 6.5% per period. No interest is paid if the average is down. FDIC insured.
Interest is paid at maturity based upon the increase in the average of 24 quarterly closing levels over the term from the starting index level to the final average index level. There is no cap on the quarterly increases. FDIC insured.
Interest is paid at maturity based upon the increase in the index from the starting level to the ending level unless the Barrier Rate is reached. If the index ever closes above the Barrier Rate of up 75% during the term, the return is capped at a 5.0% to 8.0% for the full term. The Barrier Rate will be set prior to settlement. FDIC insured.
Interest is paid at maturity based upon the increase in the average of 24 quarterly closing levels over the term from the starting index level to the final average index level. There is no cap on the quarterly increases. FDIC insured.
1.0% to 6.0% Per Full Term Paid at Maturity
Effective minimum return rate to be determined prior to settlement.
Interest is paid at maturity based upon the increase in the average of 10 semiannual closing levels over the term from the starting index level to the final average index level. Unlimited upside potential. FDIC insured.
Interest is paid at maturity based upon the increase in the average of 6 annual January 28th closing levels over the term from the starting index level to the final average index level. There is no cap on the annual increases established each January. FDIC insured.
Annual interest is paid based upon the equally weighted average gain of the stocks in the basket. Each year the gain is recomputed from the initial average value at inception to the year-end average value and interest is paid if applicable. The gain is the equally weighted average change in the basket value. Annual individual stock increases are capped at least at 12% to 16%. There is no floor for any individual stock decreases. No interest is paid if the average is down. FDIC insured.
