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More ways to sniff out a CD scam

By Sheyna Steiner · Bankrate.com
Tuesday, July 6, 2010
Posted: 3 pm ET

Allen Stanford was not the only person in history to think of scamming people using a CD as bait.

Back in 2000 the National Association of Securities Dealers launched accusations of fraud at San Clemente Securities Inc. for selling "zero-coupon" CDs and failing to disclose fees and commissions as well as shady investment strategies and advertising inflated interest rates.

Rather than advertising the annual percentage yield, which includes the effect of compounding interest in your rate of return, the brokers touted the average annual yield, according to a story from Jan. 14, 2001 in the Topeka Capital-Journal, "CD brokers don't live up to their promises."

The phrase "average annual yield" should have been a clue. Look for annual percentage yield when evaluating CD offerings. That will make it much easier to compare your prospective investment to others to get a sense of whether or not it's a good deal or a total rip-off.

Earlier this year, the FDIC issued a consumer alert (April 7, 2010) for ensuring that your deposit is covered by FDIC insurance even if you buy the CD or other deposit product from a third party.

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