CD Basics

Certificates of deposit (CDs) are debt instruments issued by commercial banks and savings and loan institutions. When you invest in a CD, you loan the bank a set amount of money. Your loan is insured by the FDIC. For the use of your money, you are promised the return of your principal plus interest over the life of the CD. CDs are considered most suitable for purchasing and holding until they are called or they mature.

Interest

At Scottrade, CDs will not be automatically renewed or rolled over, and interest on the CD will not continue to accrue after maturity.

  • Interest will be credited to your account on the payment date or within 2 business days.
  • Interest is calculated on the basis of the actual number of days elapsed over a 365-day year.
  • CDs pay out simple interest, and interest does not compound.
  • Within 2 business days of the maturity date, the principal amount will be credited to the account.

Brokered CDs

Brokered CDs are CDs issued by banks that are made available to the customers of a broker-dealer or brokerage like Scottrade.

  • The CDs are not registered with the Securities and Exchange Commission (SEC).
  • Brokered CDs are obligations of the bank, not the broker-dealer.
  • Brokered CDs generally have all the features of CDs available directly from banks and are eligible for the same FDIC insurance.

Purchasing brokered CDs through Scottrade can provide the potential for higher yield in 2 ways. First, with the ability to survey a wide range of issues, you can choose the highest rate available. Second, through access to a variety of payment structures, you can match your income needs to the optimal type of CD for you.

Jumbo CDs

Jumbo CDs are CDs with a $100,000 investment minimum and are offered by individual banks, but not as brokered CDs.

Long-Term CDs

Long-term CDs have maturities of 20 years or more and are designed for investors who have a long-term investment horizon. Some key information about long-term CDs:

  • Long-term CDs may offer more favorable interest rates than traditional CDs because of the length of time until maturity.
  • Long-term CDs carry a risk of a loss of principal if sold prior to maturity due to interest rate fluctuations and due to a smaller secondary market than traditional CDs.
  • Long-term CDs may contain call features and can be redeemed in many cases at the sole discretion of the issuer. This may occur at times of falling interest rates.

Note: Long-term CDs may not be appropriate for investors who have a shorter time horizon or who may need return of principal prior to maturity.