Not All CDs are Safe.
In 2012, the Financial Industry Regulatory Authority ("FINRA") published a notice to investment firms warning of the dangers of sales of certain "complex products" that are confusing to investors and which require heightened supervision by the firm.
While traditional CDs are typically considered simple, low-risk investment products, appropriate for a conservative investor, there are a number of "Exotic" CDs that are complex, unpredictable, and can result in huge losses of your princicpal investment. Many of these products are pushed by unscrupulous brokers because they pay high commissions.
Unlike traditional CDs, Exotic CDs have some or all of the following features:
- A high "teaser" introductory interest rate guaranteed for a short period;
- A different stated return throughout the lifetime of the product;
- The ability to lock your money in for up to 20 years;
- A variable rate that depends on reference to an asset that is not readily available to investors;
- An inability to sell the CD on a publicly traded market.
Examples of "Exotic" Unconventional CDs:
Market-Linked or Index-linked CDs
Callable CDs
Uninsured CDs
Foreign Currency CDs
You Can Lose Money Investing in Exotic CDs.
After the initial high introductory rate, you may find yourself holding a CD that is paying 0% interest per year, for the next 19 years of the holding term. If you want to sell that CD to invest in something else, you will have to find a buyer. That buyer may only be willing to buy your CD at a deep discount, resulting in a large loss of your principal investment. This loss would negate any interest that you may have earned during the first year.
An Exotic CD May Not Have Been A Suitable Investment Recommendation.
If your broker or investment adviser is a FINRA member, he or she has an obligation to know your needs and refrain from making unsuitable investment recommendations to you. If you have been sold an unsuitable investment, you may have up to 6 years to file a customer dispute.
To learn more about Exotic CDs or for a free case evaluation from an experienced attorney, call 919-446-5193.