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A guide for investors on market-linked certificates of deposit and their options

Market-Linked Certificates of Deposit (MLCD) are savings products offered by banks that tie their returns to a market index, such as the S&P 500. This means the interest you earn depends on how the chosen index performs over time. While your principal is safeguarded, your earnings can vary and may be higher or lower than traditional CDs.

Market-linked CDs have low liquidity. They are a long-term investment, so you should not plan to access your money until the  MLCD term maturity. Early withdrawal may result in principle or interest losses.

Minimum investment is $10,000
Terms generally range from 1 to 7 years
FDIC-insured

A market index is a group of stocks or bonds that represents a specific segment of the financial market. For example, the S&P 500 tracks the performance of 500 large U.S. companies.

Market losses refer to declines in the value of investments due to changes in the stock or bond markets. With market-linked CDs, your principal is not exposed to market losses, but your potential interest may be affected by how the market index performs.

It's important to know how much of your investments are resistent from fluctuations in the market. Market-linked CDs preserve your original deposit, but the interest earned can change based on the market index's performance.

The following accounts may be insured by FDIC insurance with limitations:

Individual Accounts, Joint Accounts, Revocable trust accounts, Irrevocable Trust accounts, Corporation and Partnership accounts.

Individual Retirement Accounts (IRAs) including traditional IRAs, Roth IRAs, Simplified Employee Pension (SEP) IRAs, and Savings Incentive Match Plans for Employees (SIMPLE) IRAs and Employee Benefit Plan Accounts.

FDIC-insured accounts, such as checking, savings, money market deposit accounts (MMDAs), and Certificates of Deposit (CDs), are protected by the FDIC up to $250,000 per depositor, per insured bank, per ownership category. This automatic coverage ensures depositors do not lose their money if a bank fails.

Separate insurance up to $250,000 applies to different ownership types at the same bank, including single accounts, joint accounts, and certain retirement accounts (e.g., IRAs).

Any investment that exceeds the FDIC limit is subject to the credit risk of the issuer. If the issuer has guaranteed the return of principal, the FDIC will cover both the principal and any accrued interest, up to the applicable insurance limit. IF the issuer has guaranteed the return of principal, the FDIC will cover both the principal and any accrued interest, up to the applicable insurance limit. However, if interest is only credited at maturity and the issuer were to become insolvent prior to the maturity of the CD, no interest would be insured. Additional information, including applicable limits, is on the FDIC public website at www.fdic.gov.

FDIC insurance does not cover non-deposit products, including stocks, bonds, mutual funds, crypto assets, life insurance policies, or safe deposit box contents.

Returns & Principal

Returns are not guaranteed and principal is only guaranteed when held to maturity, even if the performance of the underlying asset is negative, subject to the creditworthiness of the issuer. It is important to highlight principal protection is only provided where MLCDs are held to maturity and not where MLCDs are sold or redeemed prior to maturity.

Upside market participation

Interest is paid based on the performance of the chosen market index. If the index goes up, you may earn more; if it goes down, your interest could be lower. The term "indexed" means that the  MLCDs interest rate is linked to the performance of an external market measure, such as the S&P 500.. MLCDs can offer point-to-point, or 100% participation, in the positive performance of the underlying assets (sometimes more/less) and may cap returns depending on the terms of the MLCD.

Full interest credit 

means you receive the entire amount of interest earned at the end of the  MLCDs term, rather than receiving periodic payments. In some cases, you may be able to lock in gains—this means you secure the profit made when the index performs well, so it cannot be lost if the market declines later.

Estate feature

Many MLCDs offer an estate feature. In the event of death, the estate may be entitled to receive 100% of the principal amount of the MLCDs before maturity. The estate feature is subject to conditions and limitations established by individual issuer; the disclosure statement and applicable offering documents should be read carefully to understand these terms.

No dividends

Dividends paid by the underlying asset are not passed through to the investor

For investors who understand the risks associated with the individual structured CD also known as Market-Linked CDs can complement a balanced portfolio strategy while offering the potential to realize enhanced returns in comparison to traditional savings or deposit accounts.

There are a variety of MLCD structures which can allow investors the potential to:

• Capitalize on a market view (bullish, bearish, or market neutral)
• Complement an investment objective (conservative, moderate, or aggressive)
• Mitigate risk in a portfolio
• Gain exposure to a specific asset class or sector which may otherwise be difficult to access through direct investment

Market-Linked Certificates of Deposit are considered complex investments and may not be suitable for all investors, so it’s important to review the relevant offering documents. They can be an attractive investment choice for those looking to preserve capital and limit downside risk, without sacrificing the ability to participate in upside market movements. 

MLCDs are subject to fees and costs, including commission paid to your financial professional, structuring and development costs, and offering expenses. There are also trading costs, including costs to hedge the product. Any sales prior to maturity will be reduced by all associated fees and costs, which are detailed in the offering documents. 

Stock market CDs posses inherent risks, such as market and liquidity risks.  If purchasers sell their CDs prior to maturity, they may receive more or less than their original investment. 

CD returns may not track full performance of the indices themselves. 

Structured product CDs (MLCDs)may be treated differently than traditional CDs for tax purposes and investors should consult their tax advisors.

The information contained herein is not intended to be a complete description of the statement valuations, terms, risks, and benefits associated with any specific Market-Linked CD (MLCD) offering.

Investors should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed and should understand that statements regarding future prospects may not be realized. Past performance does not guarantee future performance. All expressions of opinions are subject to change without notice.

• Traditional bank CD: Offers a fixed interest rate for a set period. Your principal and interest are both protected and insured, but rates are usually lower than market-linked options.
  
  
• Individual treasury, municipal, and corporate bonds: Bonds are debt instruments issued by governments or corporations.
  • Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
  • Municipal bonds are issued by state or local governments and may offer tax advantages.
  • Corporate bonds are issued by companies and can offer higher returns but carry more risk. The market value of corporate bonds will fluctuate, and if the bond is sold prior to maturity, the investor’s yield may differ from the advertised yield.
    
    
• Fixed Indexed Annuity*: A fixed indexed annuity is an insurance product that offers a guaranteed minimum return and additional interest based on a market index. Your principal is protected, and you can earn extra returns if the index performs well, but typically there are limits on how much you can earn and restrictions on withdrawals.

*Fixed Indexed Annuities (FIA) are not suitable for all investors. FIAs permit investors to participate in only a stated percentage of an increase in an index (participation rate) and may impose a maximum annual account value percentage increase. Annuities are long-term, tax-deferred investment vehicles designed for retirement purposes. Withdrawals prior to 59 ½ may result in an IRS penalty, and surrender charges may apply. Guarantees are based on the claims-paying ability of the issuing insurance company.

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