The Wall Street Journal reports that sales of indexed certificates of deposit (Indexed CD) have increased 46% during the first five months of 2009.
Industry sales of indexed CDs for the 5 month period were $1.66 billion. This compares to $1.15 billion for the same period the previous year.
There are several critical differences between indexed CDs or market-indexed CDs and a plain vanilla CD:
- Indexed CDs are linked to an index such as the S&P 500. If the index performs well, the owner participates in part of the upside. If the index falls, the owner still receives their deposit which is FDIC insured.
- Indexed CDs need to be held to maturity--typically four to five years--in order for the owner to receive their principal.
- Regular CDs can be returned anytime with a full return of principal.
Source: Wall Street Journal (subscription required)
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