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 Bloomberg.com, "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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