Risk Considerations Risk Considerations   

CD Characteristics

Deposit Insurance Limits

Most banks are members of the FDIC, a government agency that insures bank deposits. You are eligible for $250,000 of deposit insurance for all the deposits you own at one bank in each recognized ownership capacity. For example, all the deposits (CDs, checking accounts, etc.) you own at one bank in your own name are insured up to a total of $250,000. You are eligible for an additional $250,000 for all deposits you own at one bank in joint accounts and another $250,000 for Certain Retirement Accounts (includes IRAs).

Diversity of Structures

All CDs do not have the same features. Banks may offer CDs with different maturities (i.e., three months, one year, five years), methods of determining interest and payment features.

Traditional CDs typically pay fixed rate interest payments that do not vary during the life of the CD. The frequency of payments is on either a monthly or semiannual basis. While simple fixed rate CDs satisfy the needs of many investors, others that are willing to accept additional risks prefer custom-tailored structures with potential for higher yield. One variation of a fixed rate CD is a callable CD, which may provide opportunities for higher yields in exchange for accepting 'call risk'.

Zero Coupon CDs are structured to provide no interest payments, but rather are offered at a deep discount and then accrete to par (the principal amount at maturity). Zero Coupon CDs are usually offered at higher yields than fixed rate CDs and feature automatic compounding of interest.

Structured CDs provide investors with an interest payment at maturity that is directly tied to the performance of an asset or basket of assets. Structured CDs combine the opportunity to participate in the positive performance of an asset or basket of assets with the security of principal protection when held to maturity. The participation in the underlying asset or basket also exposes the investor to the related risks, such as market risk, foreign currency risk or any other risk tied to the respective asset or basket.


Purchasing CDs through a financial advisor may provide the potential for more competitive yield in two important ways. First, with the ability to survey a wide range of issues, investors can choose the highest rate available that fits their respective risk profile. Second, through access to a variety of payment structures, income needs may be matched to the optimal type of CD for individual investors that are willing to accept the risk(s) associated with the various payment structures, such as the potential for complex payment structures.

Special CD Feature

A very noteworthy feature available for some CDs purchased through financial advisors is the estate benefit, commonly referred to as a "death put", which allows an estate to redeem the CD prior to maturity at par (or accreted value for a ZCD) in the event of death or legal incompetence of the owner. This can be very useful to an estate.

Other Considerations

As with other fixed income instruments, secondary market prices for CDs are subject to market conditions. CDs redeemed prior to maturity are subject to credit market fluctuations, and may return less than the initial investment. Only CDs held to maturity or call are assured the full return of principal. Callable CD holders receive the return of original principal along with earned interest when the CDs are called. In the case of Structured CDs, interest paid in the event of call follows a predetermined schedule which is disclosed at the time of issuance.