CDs

CD Risks

Default Risk

There is generally less chance of default on CDs because CDs are insured. They are considered by many investors to be one of the safest investments available. FDIC Insurance covers up to $250,000 of principal & interest per customer per banking institution. To check the financial rating of a bank issuing a CD, you can go to the FDIC or Bauer Financial Web sites.

Market Risk

If you decide to liquidate your CD prior to maturity, you will be subject to whatever price the market will bear. This can be lower than your original investment depending primarily on interest rate movements since purchase date. CDs are not deemed appropriate securities for trading. The market for secondary CDs is not liquid and if you purchase a CD, it is best to do so with the intention of holding it to maturity.

Call Risk

Callable CDs will typically pay a higher interest rate compared to non-callable CDs with the same maturity. This is because the issuer retains the right to call back the CD at specified future dates. For this right, the issuer generally will pay the CD investor a higher rate. If a CD is called, the customer will get back their principal at 100 cents on the dollar and all interest accrued up to the call date.

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The information and content provided in the Scottrade® Knowledge Center is for informational and/or educational purposes only. The information presented or discussed is not, and should not be considered, a recommendation or an offer of, or solicitation of an offer by, Scottrade or its affiliates to buy, sell or hold any security or other financial product or an endorsement or affirmation of any specific investment strategy. You are fully responsible for your investment decisions. Your choice to engage in a particular investment or investment strategy should be based solely on your own research and evaluation of the risks involved, your financial circumstances and your investment objectives. Scottrade, Inc. and its affiliates are not offering or providing, and will not offer or provide, any advice, opinion or recommendation of the suitability, value or profitability of any particular investment or investment strategy.