Indexed CD

The returns that you get from an indexed CD are not fixed over time. The interest payable is linked to something--be it a stock market index such as the S&P500, the prime rate, the yield on T-bills, a clutch of foreign currencies or even the cost of college tuition. Maturities on these CDs can be as short as 6 months or as long as 25 years, with minimums required as low as $250. There’s usually a cap from the gains that you get when the underlying index rises and if it falls, you get little or no interest but at least your principle is protected. It’s other attractive feature? Deposits are insured by the FDIC up to $250,000.

Indexed CDs are in Higher Demand

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...

Glossary:

Insured

Indexed CD