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Low CD rates spur long maturities

By Sheyna Steiner ·
Wednesday, August 1, 2012
Posted: 3 pm ET

Structured CDs have become more appealing to savers in the years since the Fed dropped the federal funds rate to zero and CD rates quickly followed.

As yields are now patently unavailable in traditional CDs, buying a CD that offers some of the return of riskier markets such as currency, stocks or commodities -- with none of the downside -- sounds like a sure bet.  But products used to create the structured CDs have been hit by falling rates, which means market-linked CDs may be losing their luster for both issuers and savers.

The solution? Banks may offer structure CDs with longer maturities, according to a July 26 article at, "Banks may extend maturities on market-linked CDs amid low rates."

From the story:

"I remember when five years was the longest, and if you went more than five years, it was sort of taboo," said Glenn Lotenberg, a managing director at Incapital LLC in Boca Raton, Fla., who’s responsible for U.S. structured note distribution. Now seven-year products aren’t unusual, he said.

"It’s likely that maturities may get extended to eight years" on the more common CDs that allow investors to participate in market gains, said Serge Troyanovsky, head of North American structured product sales at BNP Paribas SA (BNP) in New York.

For yield-starved savers that may or may not be a good thing. Structured CDs typically have harsh early withdrawal penalties -- if it's possible to get the money early at all. Further there's no guarantee that savers will reap any returns at all, which could make a traditional five-year CD look like quite the investment.

For more on structured CDs, read the Bankrate feature "Structured CDs: Gimmick or real return?

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August 02, 2012 at 11:43 am

It actually would not cost the customer anything if the product is distributed as a banking product and not a CUSIP bearing security. Of course, there would need to be a technology solution that can allow for individual customers to be able to choose personalized liquidity schedules that trade off against participation in a MLCD plus the ability to aggregate all of these different positions into one hedge for a bank's treasury. Additionally, the solution would need to be able to settle the funds appropriately back to individual customer accounts.

We've developed this technology in a solution called CHOICE (

Sheyna Steiner
August 02, 2012 at 11:28 am

Hi Matt, my question would be -- how much will that cost? Fees are another issue on which structured CDs are sometimes criticized.

If I knew I could get some money out if necessary before seven years were up and wouldn't take a hit in the form of extra costs, then that may make the prospect less unappealing.

August 02, 2012 at 9:27 am


I completely agree that the interest rate environment is making it very difficult for manufacturers to be able to offer structured CDs with terms of 5 years or less. We are seeing that the typical MLCD offers terms of about 7 years which may not be appealing for customers to lock up funds for that long of time.

However, what if there was a way to allow customers to pre-build in liquidity into their MLCD? This would allow for the withdrawal of some cash throughout those 7 years, thereby shortening the amount of time that all of the customer's deposits are locked up while still leaving funds (based on the bank's funding curve) available to buy the option needed for market participation?