CERTIFICATES of DEPOSIT

OVERVIEW    

Fixed Rate Callable CDs are issued by FDIC insured banks and are purchased at the FISN Division of Landolt Securities, Inc. a brokerage firm. Callable CDs generally offer higher rates than fixed term CDs but only because the bank mitigates the risk of offering a higher rate through the right to return the funds early (call). FDIC insured banks use brokerage firms  to distribute their CDs nationwide.  The FISN Division has access to inventory of CDs from most major Wall Street firms and CD issuers. Investors can then select the CDs that meet their needs for yield and return of principal through FDIC insurance. All CDs are held in a brokerage account. The banks do not issue physical certificates.

PROCESS      

Investors open a standard brokerage account at the FISN Division of Landolt Securities, Inc. Accounts are held at National Financial Services LLC., which provides Clearing, Custody and Safekeeping services for Landolt Securities. A brokerage account may hold many different CDs. It is not necessary to open a new account for each CD purchase. If you already have an FISN brokerage account, you may purchase your CDs immediately. If you have opened a new account you need to fund the account by sending a fed funds wire or a check. Once funds have been received, you may begin purchasing securities.

 The FISN Division of Landolt Securities, Inc. sends new account paperwork and any additional brokerage forms to the customer or they may be downloaded from our Form page. Paperwork is returned to the FISN Division of Landolt Securities, Inc. along with the required identification. See ID requirements below.

Confirmation of each securities trade and account statements are sent for each account to the investor from National Financial Services LLC on behalf of the FISN division of Landolt Securities

 FDIC COVERAGE        

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 to insure coverage of both principal and interest. There is no limit on the number of banks the can be purchased per brokerage account and accounts can be opened for other ownership categories such as joint or trust accounts. FDIC coverage for retirement accounts is $250,000 per bank and is separate from any FDIC insured accounts the owner may have with that bank. FISN can work with you to spread your funds over multiple FDIC insured banks and over multiple brokerage accounts (if you qualify) to keep your funds within insured limits. 

CALLABLE CD FEATURES

Callable CDs have an initial non-callable period and are then callable term for the remaining term of the CD. Callable CDs pay interest at a fixed rate over the life of the CD. The interest is paid on a periodic basis into the brokerage account, where it can continue to earn interest in a money market fund account. 

At the end of the non-callable period, the CDs may be called for the full amount of the deposit plus any accrued interest and deposited to the brokerage account. If not called, the CD continues to pay interest at the fixed rate but remains callable, usually on the interest payment dates. Only the issuing bank of each CD can make the call decision, not the depositor or the broker. The CD will continue to pay interest for the full, possible CD term if it is never called. Key information is the name of the bank, the first call date, subsequent call dates and the final stated maturity at the end of the possible term.

Interest paid into the brokerage account can be paid out via checks or electronic funds transmission straight to your local bank. You can set up a payment schedule called a "Custom Payment/Earning Plan. The form is available on the Forms page. 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.

ID REQUIREMENTS

CDs are held in a Brokerage accounts at the FISN Division of Landolt Securities, Inc. Securities in Landolt Securities accounts are carried by National Financial Services LLC, Member NYSE/SIPC, a Fidelity Investments company which provides Clearing Custody and Safekeeping services.

The FISN Division of Landolt Securities, Inc. is required under the Patriot Act to verify the identity of individuals and entities. Individuals are required to provide a copy of a current government issued, photo identification. Business accounts, trusts and other non-individual accounts have special requirements. Ask your FISN Representative what documents will be required to open up a particular type of account.

Please note that some banks exclude residents of certain states from the purchase of their CDs. Your Representative may need to inquire about your state of residence

 FEES

There are no placement fees or commissions for the purchase of a CD. The issuing banks pay brokers to distribute their CDs nationwide. New issue CDs are sold at par or a price of 100.00 for each $ 100.00 of the CD. Par is the face amount of the CD on which interest is earned. Some CDs may require minimum purchase amounts. Your Representative may need to inquire about how much you wish to invest.

Click on the link above to read the Standard CD Disclosure that applies to most types of CDs. It covers the general terms and conditions applicable to CDs. Some CDs have disclosures (Prospectus) that are particular to that issue that can include details of interest calculations, market baskets or an index. Examples of a CD that would have a separate Prospectus include Market -Linked or Floating Rate CDs.. If there is a separate Prospectus (known as a Disclosure Statement) for a CD it will have a "Prospectus" link with the offering. Look for the Prospectus for each deal with a Prospectus through the link on the FISN Division web site or ask your FISN Division Registered Representative to send it to you. Current disclosures are made available to purchasers for new issues either by mail or online after the trade date or settlement date. Disclosures for secondary issues were publish at the time of the original offering but may be no longer available.

FISN will endeavor to supply a Prospectus for secondary market CDs but cannot guarantee availability

UNIQUE RISKS FOR CALLABLE CDS

Callable CDs present risks unique to this style of CD. Callable CDs pay a fixed interest rate until called. The bank can choose to make the call decision at any call date after the initial non-call period. Investors should be aware of the timing of each call date and the other terms of the CD. If the CD rate is above the current market interest rate and the CD is callable, the underlying CD becomes subject to Call Risk since the bank is motivated to replace the deposit with less costly funds. Reinvestment Risk arises when CDs are called, causing investors to relinquish a high rate and replace it with a lower, current market rate.

MARKET RISK

All investments, including certificates of deposit (CDs), held in a securities account are subject to market risk. Market risk is present for all securities-the risk that the current market rate for your investment has decline since purchase. Of course, the market price could go up, but that’s a good thing. Most CD investors buy with the intent to hold the CD until maturity. However, there is 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 Division brokerage accounts’ monthly statements produced by National Financial LLC, which provides Clearing, Custody and Safekeeping services for Landolt Securities. Many fixed income securities, especially CDs, do not trade frequently so that these prices reflect and estimated current market price rather than an actual price of a security sale. If you wish to get a current market bid for your CD or other fixed income security, please speak to your FISN representative.  It is possible that the value could rise, and then it would be a market value gain. Market risk is an overall risk caused many factors such as interest rate movements, transaction costs and availability of purchasers for your security.

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 payments. Interest rate risk is present if interest rates are moving up from the original rate that you purchased. The amount of interest income you receive relative to the income possible from a current higher rate is the risk you take when committing yourself to a purchase. It is not realistic to assume rates will always remain at the levels prevailing when you made the purchase-rates go up and they go down over time. The way to remember which way market value moves is simple: if rates rise, the “market” value will fall.  Your will likely receive less money than you paid for your investment. When rates fall, the “market value” will rise. You will likely receive more than you paid for your investment.

Purchasers in the secondary market demand the yield on previously issued CDs be increased to current levels before they buy them. Since the interest rate on the CD cannot be changed, these yields are increased by reducing the prices. This risk could become a real loss if holdings are actually sold.

SECONDARY MARKET AVAILABILITY RISK

The sale of all investments is subject to the availability of a secondary market. The availability of secondary markets affects Income producing investments, including certificates of deposit (CDs), because they do not trade like stocks do on an organized and well established “market”. The risk is the lack of such an organized marketplace. Fixed Income (including CDs, Municipal and Corporate bonds) trades in an over-the-counter marketplace which consists of sales between brokerage firms via telephone and computer. However, most investors purchase CDs with the intention of holding them to maturity. In that case, the possible lack of a buyer will not affect the investor.

The FISN Division of Landolt Securities, Inc., though not obligated to do so, may maintain a secondary market in CDs after any initial distribution. Simply stated - buyers are needed in order for the investor to sell any investment. While the FISN Division, the original distributor of the issue or any other brokerage firms active in the over-the-counter market endeavor to make a market in CDs, there is no guarantee that a buyer will be found for an investment. The risk of selling an investment is that the price a buyer is willing to pay can be greater or less than the original price paid for the investment. This risk could become a real loss if holdings are actually sold.

CALL RISK

Callable investments, including callable CDs, are subject to call risk. Depositors should clearly understand all the call provisions of their investment. This call risk is present even if you plan to hold CD investments until maturity. The bank can “call” or redeem a CD on certain call dates prior to maturity. The bank calls the entire issue regardless of the holder. When called, the bank returns the full deposited amount with interest up to the call date. Only the bank can exercise a call, not the account holder or the broker. Banks usually call a CD when rates have fallen and they can replace the deposit at a lower rate. The risk is that, even though you get back your full deposit, when you go to reinvest these funds, it will earn a current, lower rate. Never rely on a call to receive funds back from an investment early. It is possible that even if rates have fallen that the bank will not call a CD. Calls cannot be predicted since banks consider only their own funding needs and costs.

RE-INVESTMENT RISK
All fixed income investments are subject to re-investment risk. This risk is related to what you do with the funds 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. It is possible that rates may be higher and/or more products are available. Strategies to lessen this risk: time investment maturities close to when you might need the money, go long when rates appear high and to go short term when rates appear low. Some investors do both by laddering the maturities of their investments 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 the risk of insolvency, the banking version of corporate default, is lessened. When properly held and registered, FDIC insurance covers principal and interest up to $ 250,000.00. The FDIC usually transfers deposits to a viable bank or simply returns the deposit when a bank fails. While the return of funds by the FDIC is usually prompt, in certain cases in can be a lengthy process.

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. A CD investor can reclaim their funds by liquidating a certificate of deposit through a variety of methods. CDs can be sold in the over-the-counter market 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. The survivor receives par value of the principal and any accrued interest.

CD SALE
Certificates of deposit can be sold in the secondary “over the counter” market, which is conducted via the telephone and computer between brokerage firms. 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. 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 through 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 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 firms. The receiving firm requests the delivering firm to transfer cash, securities and CDs between accounts registered in the same ownership name. 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. CDs held in a brokerage account do not have physical certificates.

PAYABLE ON DEATH
Certificates of deposit generally have a feature that permits CDs to be paid back following the death of an owner. This is also called a “death put”. 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 criteria for accepting a death put, since there are no government rules or standards for a death payment. 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.

The FISN Division of Landolt Securities, Inc. can assist survivors or estate officials in this process. The death put of a CD must be done from the brokerage account of the former owner. The transfer of the CD to another account voids the death put. The transfer of the CD signals the new owner’s acceptance of the CD as is.

The return of funds is not immediate and can take several weeks or more 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. The new owners may move the funds to their brokerage account or request a check.