Certificates of Deposit

A certificate of deposit (CD) is a deposit of cash with a depository institution that carries a fixed interest rate and maturity date. Brokered CDs allow you to either hold the CD to maturity or redeem the CD prior to maturity at prevailing market rates, which may be higher or lower than the original investment. Market prices will vary according to market conditions and you may receive more or less than the original purchase amount if the CD is redeemed prior to maturity. In periods of rising interest rates, you may lose part of your original investment due to early redemption.

Market Index CDs are deposits of cash with a depository institution that carry a variable interest rate and a fixed maturity date. Unlike traditional CDs that pay a fixed rate of interest, Market Index CDs pay interest based on the rate of appreciation of a stated equity market index.

Market Index CDs are highly illiquid and are typically held to maturity. They are also callable, meaning they may be redeemed at the issuers' discretion prior to maturity for a stated rate of interest. The call feature serves as a cap on the amount of interest the bank must pay you in the event the market index appreciates significantly over certain intervals while the CD is outstanding.

In addition, although you receive no current income during the holding period, you will be required to pay ordinary income taxes over the term of the investment based on an estimated annual accretion of approximately 6%. This rate is not related to the performance of the index but is the average yield of a CD of the same maturity. These annual tax payments will reduce ordinary income tax consequences upon liquidation.