Risk Considerations Risk Considerations   

Interest Features

There are a variety of CD interest rate options, including variable rate, contingent rate and fixed rate. When considering these rate types, investors should carefully consider their respective investment needs, risk tolerance and the associated risks and features of the product including, but not limited to, interest rate risk, liquidity risk, and call risk.

Fixed Rate

Many CDs pay interest at a fixed rate for the term of the CD. Interest may be paid to you periodically during the term of the CD or at maturity.

Variable Rate

CDs may offer rates that change periodically during the CD's term. With such CDs you need to understand how the interest rate is calculated and how often the rate can be re-set.

CDs that re-set the rate periodically are referred to as "floating rate" CDs because the rate "floats" during the term of the CD. These CDs may re-set the rate at pre-determined intervals against any number of common financial references – Treasury securities, the prime rate or some other index. If these indices decline, so may the rate on the CD. The APY may reflect the rate in effect at the time you purchase the CD.

CDs that change to a pre-determined rate at pre-determined times are referred to as "step rate" or "step up" CDs. These CDs may have an interest rate that is fixed for a period of time and then "step up" to another fixed rate. The steps may occur more than once before the CD matures. The APY on step rate CDs may reflect the total interest to be paid during the life of the CD, so it may be less than the highest step rate, but more than the lowest step rate.

Contingent Rate

The rate on some CDs is determined by the outcome of some event or the performance of a financial index. For example, many banks offer CDs that pay interest linked to the performance of the stock market. You receive the percentage increase in the value of the stock market over a period of time. If the value of the stock market does not increase, you may receive no interest. In many cases, a contingent rate CD may have an APY of 0%. This reflects the fact that the CD has no stated interest rate and the interest rate cannot be determined at the time you purchase the CD.