CERTIFICATES of DEPOSIT

OVERVIEW    
Fixed Rate, Fixed Term CDs are FDIC insured and are purchased at FISN, a brokerage firm. FISN searches nationwide for the best CDs with a standard fixed rate and fixed maturity date and offers these certificates of deposit for investment. FDIC insured banks and brokerage firms team-up to distribute insured CDs across the nation. FISN has access to the widest inventory from all major Wall Street firms. Investors select CDs that meet their needs for safety, yield and return of principal. The CD is held in a brokerage account.

PROCESS       
Investors start by selecting suitable CD investments and then open a standard brokerage account at FISN in their name. A brokerage account can hold many CDs of any type, such as a laddered CD portfolio, without limit. The investor wires funds or sends a check to fund this new account. FISN sends new account paperwork and purchase confirmations to the investor. The brokerage forms are completed and the transaction confirmation is verified. Only one account needs to be opened for each ownership category. Paperwork is returned to FISN along with the required identification.

FDIC COVERAGE        
Fixed Rate, Fixed Term CDs are purchased in amounts starting at $25,000. No more than the $250,000 insurance limit per ownership category should be invested in any one bank at the same time. There is no limit on the number of banks per account and multiple accounts can be opened for other ownership categories such as IRA, joint or trust accounts. FISN understands the FDIC insurance rules and helps depositors gain the best return by maximizing coverage. FDIC coverage for retirement accounts is $250,000 per bank.

FIXED RATE, FIXED TERM CD FEATURES
This is a standard FDIC insured CD. It is held in a brokerage account and pays interest at a fixed rate over the life of the CD. The interest is paid on a semi-annual or monthly basis into the brokerage account where it can continue to earn interest in a money market fund account. There are no call provisions. The rate is fixed up-front and cannot change. The term is fixed up-front with a certain maturity date that cannot change. Key information is the name of the bank, the issue date and the maturity date.

Interest can be disbursed immediately or periodically via checks or electronic funds transmission straight to your local bank. Available cash also can be withdrawn from the account via checks, automatic teller machines or debit card. There may be fees for accounts with ATM or debit cards.

See A Guide to Understanding Certificates of Deposit

See Which CD Is Right for You?

ID REQUIREMENTS
Brokerage accounts are opened at FISN’s brokerage division, First Internet Securities Network. Securities in FISN accounts are carried by National Financial Services LLC, Member NYSE/SIPC, a Fidelity Investments company. FISN is required under U.S. government rules to verify ownership of all accounts. Individuals are required to provide a copy of a valid government issued, photo identification. Business accounts, trusts and other non-individual accounts have special requirements. Some banks exclude residents of certain states from the purchase of their CDs, otherwise, there are no limits and plenty of unrestricted product is available.

FEES
There are no placement fees paid by the investor. Banks pay brokers to distribute their CDs. New issue CDs are sold at par or a price of 100.0 to the investor. Par is the face amount of the CD on which interest is earned. Some CDs may require minimum purchase amounts.

UNIQUE RISKS FOR FIXED RATE, FIXED TERM CDs
Fixed Rate, Fixed Term CDs present few unique risks. These CDs are traditional CDs established at a fixed rate for a fixed term. There are no steps or calls.  Investors should be aware of the rate, the frequency of interest payments and the maturity date. The risk is that the CD rate may dip below the prevailing market rates. If the rate is below the market, the investor has lost the opportunity to earn a higher return. Since Early Withdraws are not available, the only way to get your investment back and capture a higher rate is to sell the CD at a market price which probably will generate a loss. Such a loss is comparable to an Early Withdraw Penalty but could be greater if rates have risen significantly.

MARKET RISK
All investments including certificates of deposit (CDs) held in a securities account are subject to market risk. Market risk is always present but has no effect if CDs are held to maturity. Most CDs are purchased with the intention of holding them to maturity. This risk arises from the valuation that potential buyers in the market put on an investment that could be offered for sale. The potential risk is that the value may fall and transaction cost may be incurred if the item is put up for sale. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. It is possible that the value may rise as well and then it would be a market value gain. Market risk is an overall risk caused many factors such as interest rate movements, transaction cost and availability of purchasers.

INTEREST RATE RISK
All investments that pay interest or dividends are subject to interest rate risk. Certificates of deposit (CDs) are included since their primary purpose is to produce income in the form of interest. Interest rate risk is present if interest rates are moving up from their original level but has no effect if CDs are held to maturity. Most CDs are purchased with the intention of holding them to maturity. The rule is simple: if rates rise, the “market” value will fall. All purchasers in the secondary market demand the yield on previously issued CDs be increased to current levels before they buy them. Yields are increased by reducing the price. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. Of course, the value may rise if interest rates fall and then it would be a market value gain if sold.

SECONDARY MARKET AVAILABILITY RISK
All investments are subject to the availability of a secondary market. Income producing investments including certificates of deposit (CDs) are included particularly since they don’t trade such as stocks do on an established “stock market”. The risk is the availability of such an organized and active place to sell your investment. This risk is present if you plan to sell your investment but has no effect if CDs are held to maturity. Most CDs are purchased with the intention of holding them to maturity. FISN, though not obligated to do so, may maintain a secondary market in CDs after any initial distribution. Simply stated - buyers are needed to sell something. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN monthly statements. Current market values can be requested from your FISN Investment Manager. Relative values may rise if more buyers are present and can be reached in a timely and effective fashion.

RE-INVESTMENT RISK
All fixed income investments are subject to re-investment risk. This risk is related to what you do when an investment ends, regardless of the reason. If you plan to continue investing, you have to re-enter the marketplace to find a new, replacement investment. One side of this “risk” is that rates may be lower and/or fewer products are available. The other side of this “risk” is that rates may be higher and/or more products are available. Strategies to lessen this risk are to time investment maturities close to when you might need the money back or to go long when rates appear high and to go short term when rates appear low. Some investors do both by laddering the maturities between long and short terms. Longer term CDs capture higher returns from longer investments. Shorter maturities keep the remainder of your funds regularly available so rate swings are not missed.

PRINCIPAL RISK
All investments are subject to principal risk. This risk is connected to the issuer. If the financial outlook of issuer declines, the issuer’s credit rating could be downgraded or the issuer could actually default on its debt. With most debt, if the issuer is less credit worthy, the debt will fall in value. And, if the issuer cannot repay the debt at all, the investment may be near worthless. The principal value will diminish in either case. With FDIC insured CD investments these two risks are nearly non-existent. Most banks, particularly regional banks, are not rated but even if they were, it typically does not’t matter much because the FDIC stands behind the bank. In a default, the FDIC is still there, protecting depositors. The FDIC usually transfers deposits to a viable bank or simply returns the deposit when a bank fails. Both actions occur promptly as is required in the FDIC rules. This risk is avoided by following the FDIC rules and staying insured.

OVERVIEW
Certificates of deposit (CDs) are less liquid than trading investments such as stocks. CDs are designed to be held to maturity rather than be bought and sold, over and over again. A CD investor can reclaim their funds by exiting a certificate of deposit through a variety of methods. Some CDs have early withdrawal rights, nearly every CD can be sold and most CDs have a payment at death feature.

EARLY WITHDRAWAL
Certificates of deposit held in brokerage accounts do not have early withdrawal rights for reasons other than death of the owner or joint owner.

CD SALE
Certificates of deposit can be sold in the secondary market for fixed income investments. This market is an “over the counter” market which is actually conducted over the telephone. There is no mechanism such as the New York Stock Exchange where orders can be entered and a sale is guaranteed. The availability of this secondary market for CDs cannot be guaranteed. And, there may not be buyers willing to pay an acceptable price if a CD is put up for sale. Also impacting the price is that CDs compete with other fixed income investments being offered at the same time. To start the CD sale process, the investor has to offer their CD for sale to their broker. The broker will consider whether the brokerage firm wants to hold the CD in its own inventory for resale at a later time or to sell it to another brokerage firm on the “street”. The broker will offer a net price to the investor for the CD. The broker and other “middle men” will build into their prices a trading incentive to cover their cost and profit objectives. The investor can accept the price or continue to hold the CD. There is no assurance how high the “bid” price will be or that this price will be close to estimated prices shown online or printed on recent statements. Prices are simply reflections of the market and business objectives of participating firms.

TRANSFERABILITY
Most CDs held in a brokerage account can be transferred between brokerage firms. The receiving firm generally requests the delivering firm to transfer cash, securities and CDs between accounts registered in the same ownership capacity. All debits and fees need to be paid prior to a transfer. Every firm has a process including minimums, fees and forms. It is not possible for certificates to be issued and sent to owners of record. Registration of ownership directly at the issuing bank, outside the brokerage community, reduces liquidity, prolongs an ownership transfer and lengthens the time for any sale.

PAYABLE ON DEATH
Certificates of deposit generally have a feature that permits CDs to be paid off following the death of an owner. The standard privileges for refunding the CD apply if the CD is owned by a single person or by a joint account of individuals. Other ownership forms used by individuals may require investigation to determine whether they fit the circumstances necessary for payment on death. Each bank has its own program since there are no government rules or standards. If applicable, the bank usually requires a death certificate and a standard form indicating the authority of a living individual to request the payment following death for the deceased person. FISN can assist survivors or estate officials in this process. The return of funds is not immediate and can take several weeks once all the paper work is submitted. If the CD is held in a brokerage account the funds are simply returned to the brokerage account. The full amount is returned with interest up to the date of withdrawal.