Released: May 02, 2006

Market-linked CDs: Know the risk

Source: By Sandra Block, USA Today

The March issue of Popular Science highlights cool stuff we thought someone would have invented by now: A flying car. A cure for baldness. A robot maid, like Rosie on the The Jetsons. Here’s another item to add to the wish list: an investment that delivers great returns with no risk. Unfortunately, such an investment doesn’t exist. But that hasn’t stopped some enterprising brokers and financial advisers from claiming that they’ve found a way to defy the laws of economics.

The latest example: market-indexed certificates of deposit. These products, also known as market-linked CDs, seem to offer the best of both worlds. Your principal is guaranteed by the Federal Deposit Insurance Corp. And you can earn returns based on a stock market index, such as the Standard & Poor’s 500 index.

That sounds like a great way to strap a jetpack to what has historically been a humdrum investment. But a market-indexed CD “has more risk than a typical bank CD,” says Grace Vogel, executive vice president for the New York Stock Exchange. You could lose money or earn less than you expected.

Read Full Article: Market-linked CDs: Know the risk