FINRA Warns High-Yield CD Offers Can Be Bait for High-Commission Investments 

Advertisements touting higher-than-average CD yields might actually be a lure to trick investors into buying costly investments, the Financial Industry Regulatory Authority said today in a new Investor Alert.

“In light of today’s low interest rates, these ads attract attention. Some may be legitimate marketing, but calls into our Securities Helpline for Seniors indicate that many such ads are ploys in which the CD is used as bait to try to sell you a high-commission product, such as a fixed or equity-indexed annuity, a complex insurance investment that is not FDIC-insured and not subject to federal securities laws,” said Gerri Walsh, FINRA’s Senior Vice President of Investor Education. “The reality with these CD come-ons is that you may end up walking out with a costly financial product that is not a CD, and not risk-free.”

Be wary if you respond to one of these promotions for a certificate of deposit, Walsh recommended. Most require that you show up at an office and speak with a salesperson, who may try to sell you an alternative product very different from a CD. And whether you buy the CD or the alternative, you generally must commit to a sizable minimum purchase amount, such as $25,000.

In addition, the yield on the CD may include a “bonus,” which is an amount above the average percentage yield, or APY. This bonus is essentially an incentive paid by the company or salesperson to get you in the door to hear the sales pitch for another product, such as a fixed or equity-indexed annuity.

If you say “no” to the product being pitched, you can generally still buy a CD, but the salesperson may direct you to a local bank or elsewhere where you will get the going rate. The salesperson will then likely pay you the difference between the CD rate offered by the issuing bank and the promotional rate that got you in the door. From the seller’s perspective, this “bonus” is simply a marketing cost, similar to a free meal at an investment seminar.

After the purchase, you’ll probably receive sales pitches for additional financial products, which may be offered at a discount, but you are likely to pay a hefty commission. If you have questions about the legitimacy of one of these promotional offers, contact your state insurance commission.

Source: FINRA

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