Special CD Features
Brokered CDs have an estate feature that allows an estate to redeem the CD prior to maturity at par (or at accreted value for a Zero-Coupon CD) in the unfortunate event of death or legal incompetence of the owner. This feature is also called a 'Survivors Option'.
Brokered CDs do not incur a penalty for early withdrawal. However, they must be sold on the secondary market should the need arise to liquidate before maturity. Due to market conditions, investments sold in the secondary market may be worth less than their original purchase price. Only CDs held to maturity are entitled to the full return of the deposit amount.
CDs are generally purchased as a 'buy and hold' security. However, in the event that the security must be sold before maturity, Scottrade will arrange to sell the security on the secondary market. The price you will receive depends on the prevailing interest rates, the time remaining until maturity, and the features of the CD. You may receive more or less than you originally paid for your Certificate of Deposit.
Certificates of Deposit are fully taxable by federal, state and local taxing authorities. You are even required to pay taxes annually on a Zero-Coupon CD on the accreted interest even though you do not receive interest until maturity. You may be able to defer taxes on your CD interest by holding it in an IRA account or other retirement account. The maturity must correspond with the mandatory withdrawal requirement of the investor.
Some CDs are restricted to investors that reside in certain specified states. The reason for this is that CDs are not always registered in every state. Also, some state banks do not wish to have their local banks in competition with broker-dealers in the sale of their CDs. This is at the discretion of each financial institution.
Annual Percentage Yield (APY)
The APY represents the interest earned through each year-end period based on compound interest calculations.
CDs do not automatically renew at Scottrade. The investor must purchase a new CD at the time of maturity in order to keep the money fully invested.
Account Positions & Settlement
Certificates of Deposit are purchased by Scottrade's Fixed Income Trading Desk. The trade will show in the account, but the money will not be debited until settlement date. Funds reserved for settlement date on a CD trade will continue to earn interest at the prevailing Scottrade rate.