|
|
|
Are brokered CDs too good to be true? Look closer By Richard Burnett
http://www.JewishWorldReview.com | (MCT) William Katker thought he was playing it safe and smart when he parked some retirement money last year in a high-yield certificate of deposit he purchased through his stock brokerage. Katker's government-insured six-month CD had an annual percentage yield of nearly 4 percent, which easily beat the returns of the money-market funds to which many investors fled last year during the stock market's plummet. It seemed like a low-risk move — until the bank that issued the CD failed. Then Katker had to get in line with other former customers of "I didn't lose my principal, but I lost access to the money and almost a month's worth of interest," said the retired stockbroker, who lives in Even relatively safe, federally insured certificates of deposit issued by banks and credit unions can pose hazards for investors seeking to squeeze the biggest returns from their portfolios amid a slumping stock market and historically low interest rates. In some cases, investors are turning to their brokerages, which offer them higher CD rates based on special deals negotiated with certain banks. In other cases, nonbrokerage firms are luring investors with high rates they claim to have tracked down at relatively unknown banks. Experts say that, even with something as straightforward as a savings CD, you should be wary of any claim that sounds too good to be true. "There is a real need for consumers to be on their toes and do their homework," said
Next, you should know something about the bank or credit union whose CD you're planning to buy. The Buying a CD through a broker, as Katker did, can complicate things further. Although "brokered CDs" typically offer some of the best rates available, there are limits, in some cases, to the "If you need to get your money out prior to the CD maturity date, it's not as easy as forfeiting some interest as an early-withdrawal penalty and going on your way," McBride said. "In fact, the CD will be sold to an investor, and the amount you receive back depends on what the investor will pay on the secondary market."You should also be sure you know how long your money will be tied up before you bite on a high rate. Buying through a brokerage also may expose you to account fees, said Potentially worse are high-yield CDs promoted by unfamiliar companies that may, in fact, be peddling much riskier investments.
Some companies — often known as CD-locater services — operate legitimately by referring investors to a bank that offers the high-yield CD advertised, regulators say. Even if the advertised rate isn't available, the firms must cut a check to investors to make up the difference in yield. But people who respond to such promotions should be ready for a sales pitch for other financial products because that's how such operations really make their money, said "These companies are looking for sales leads," he said, "and if many of the people who come in asking about the CD end up buying an annuity, the company will make some big commissions." Investors should call the "Some of our competitors have taken unfortunate shortcuts with customers," said But that is not always the case in the CD-locater business, said "Obviously, people have to take some personal responsibility and do their due diligence in these things," he said. "But some of these outfits can be very slick. Sometimes you think you've done enough, and you can still end up with a big problem."
Every weekday JewishWorldReview.com publishes what many in the media and Washington consider "must-reading". Sign up for the daily JWR update. It's free. Just click here.
Comment by clicking here. © 2009, The Orlando Sentinel McClatchy-Tribune Information Services. |
Arnold Ahlert | |||||||||||
