(Note: This is part 3 of a series of posts about the benefits and costs of Structured CDs. Link to Part 1 (Structured CD Risks) / Link to Part 2 (Structured CD Benefits). At the time of this article, I own an S&P Index-linked Structured CD in a retirement account).
Here’s How (and Where) to use Structured CDs.
DON’T use them in a taxable account – your returns or ‘payback’ at the end of the contract is taxed as ordinary income. Continue reading
(Note: This is part of a multi-part-series covering the benefits and risks of Structured CD’s. Part One is here, which discusses the risks of Structured CDs. Part Three is here, which discusses the Where and How Structured CDs may be appropriate. At the time of this writing, I own a Structured Index CD in a retirement account).
Structured CD’s, Structured Notes, and Structured Products have received some really bad press- some deserved. But here are:
5 Reasons that Structured CD’s Rule
1) You’re Guaranteed not to lose money.
If you’re investing in CDs equal or less than $250,000 per institution/bank, your principal (initial investment) is guaranteed by FDIC insurance.
2) You don’t need to be an institutional investor to buy super-long-term options.
(Gubmints Note: This is part of a multi-part post, which will also extoll the virtues of Structued CDs and Structured Notes, and provide strategies on how to use them. At the time of this writing I hold an S&P Index-linked Structured CD in a Retirement Account).
With bond and bank CD rates near zero, investors have been scrounging everywhere they can to find respectable yields (Note, if you’re a Govvie the best place to park cash is the TSP’s G Fund– It gives you returns of long-term bonds with the liquidity of a Money Market Fund. You can’t find a product like this anywhere)
. Folks without a G Fund generating their current income may resort to chasing yields in complex products like Structured CDs.
A Structured CD allows you to purchase participation in an index (like S&P 500 or DJIA, but it could be any index) up to a participation ‘cap’. Your initial investment value is guaranteed by FDIC insurance (which, per Dodd-Frank, is up to $250,000 per bank/instutution). No downside with huge potential upside? Sounds too good to be true!
Here’s Ten Reasons Structured CDs and Structured Notes Suck: