CERTIFICATES of DEPOSIT

OVERVIEW

Floating Rate & Contingent Interest CDs are FDIC insured and are purchased at the FISN Division of Landolt Securities, Inc., a brokerage firm. The bank pays interest at a variable rate for Floating Rate CDs. Contingent Interest CDs pay at a fixed rate when certain conditions are met.  In either case, the bank computes the interest earned for each period based upon the specific terms of each CD. Some Floating Rate & Contingent Interest CDs are callable. Only the bank has the right to call a CD and return the funds early, not the investor or the brokerage firm. FDIC insured banks use bokerage firms to distribute their CDs across nationwide. The FISN Division of Landolt Securities, Inc. has access to a wide inventory from most Wall Street firms and CD issuers. Investors select CDs that meet their needs for yield and return of principal through FDIC insurance. The CD is held in a brokerage account.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.

FLOATING RATE & CONTINGENT INTEREST CD FEATURES

>Floating Rate CDs pay interest at a variable rate over the life of the CD. A given interest rate is often fixed for an initial period. Thereafter, the variable rate for a period is fixed based upon the CD’s formula or the variable rate could be re-calculated as often as every day based upon a formula. The effective rate for the period is often determined at the end of the period. Each CD has its own unique terms that establish the formula. Click on the Prospectus link for each issued listed on the rates tables to see the complete terms, conditions and formulas for each issue. Consult the RISKS tab for the advantages and disadvantages of a Floating Rate CD.

Interest is paid on a monthly, quarterly or semi-annual basis into the brokerage account, where it can continue to earn interest in a money market fund account. It is possible that no interest might be earned in a period, if the formula indicates it, or the effective rate may be capped on the upside at a certain percentage. Investors are advised to study the Terms & Conditions (Prospectus) of each offering and the Disclosure documents carefully in order to fully understand floating formulas, contingency terms and other features. Disclosures and Prospectus should be retained for future reference. Consult the RISKS tab for the advantages and disadvantages of a Floating Rate CD.

Floating Rate CDs can be callable as well, often at the end of each interest period, which usually is semi-annually. Key information is the bank issuer, interest rate formula including the name of the index, the source of the index and where it is available to view, frequency of the adjustment, any floors or caps, call dates and the maturity date.

Contingent Interest CDs have a fixed rate of interest that is earned based upon satisfying certain conditions; the interest payment is contingent on these conditions. The interest rate is often fixed for an initial period. After the initial period, the contingent conditions determine when interest is accrued and when it is not. The contingent calculation is often determined each day and interest is accrued daily until the end of the period.

Each CD has its own unique terms that establish the formula. Investors are advised to study the Terms & Conditions (Prospectus) of each offering and the Disclosure documents carefully in order to fully understand floating formulas, contingency terms and other features. Disclosures and Prospectus should be retained for future reference. Consult the RISKS tab for the advantages and disadvantages of a Contingent Rate CD.

Interest is paid on a monthly, quarterly or semi-annual basis into the brokerage account where it can continue to earn interest in a money market fund account. It is possible that no interest might be earned in a period if the formula accrues no daily interest because the conditions were never satisfied. Investors are advised to study the Terms & Conditions of each offering and the Disclosure documents carefully in order to fully understand the Contingent Interest formulas and other features. Disclosures should be retained for future reference. Consult the RISKS tab for the advantages and disadvantages of a Contingent Rate CD.

>Contingent Interest CDs can be callable. If it does have a call feature, it is often at the end of each period, usually semi-annually. Key information is the bank issuer, contingent interest formula including the name of the index, the source of the index and where it is available to view, frequency of the adjustment, floors or caps, call dates and the maturity date. Consult the RISKS tab for the advantages and disadvantages of a Contingent Rate CD

See Brochure on Structured CD Investment linked to Interest Rates, LIBOR and Inflation Indexes.

See Federal Reserve Statistical Release on Selected Interest Rates (Daily) 

See Interactive LIBOR Rate Graphs over the past twenty years or an Historic Chart of LIBOR by month for the last twenty years.

CALLABLE CD FEATURES 

Floating Rate & Contingent Interest CDs often have a call feature. If the CD is callable, it has an initial non-callable term with the remaining term callable. The interest rate is established for each Floating Rate period according to the Floating Rate terms. A fixed rate is earned based upon satisfying the conditions of the Contingent Interest terms. These interest terms cannot change during any period regardless of call provisions. The decision to call a CD early is at the sole discretion of the bank, not the investor or the brokerage firm.

The interest is paid 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. When called, the bank returns the deposit amount to the brokerage account with full interest to date. If not called, the CD remains callable, usually every 6 months. 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 disbursed via checks or electronic funds transmission straight to your local bank. You also 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.

Typical Product Disclosure for a Contingent Interest CD tied to LIBOR rates and the S&P 500 Index

Typical Product Disclosure for a Leveraged Steepener CD tied to CMS rates

 

UNIQUE RISKS FOR FLOATING RATE & CONTINGENT INTEREST CDs

Floating Rate & Contingent Interest CDs present unique risks related to the rate adjustment features. Thses CDs by their very nature are not traditional CDs. Floating Rate CDs will pay an initial rate of interest for a definite period and will “float" to an adjusted rate thereafter.

Floating Rate CDs have a formula based upon widely used indexes that determined the rate and the timing of any change.

Contingent Interest CDs have a fixed rate that is earned based upon satisfying certain conditions. The payment is contingent on these conditions.

The risk is that the floating rate may be above prevailing market rates or the contingent conditions are better than current offerings. If the terms are better than the current market 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 or better terms and replace it with a lower current market rate or less attractive terms.

The initial rate in a floating rate CD or the fixed rate in a contingent CD is not the yield to maturity (YTM). The YTM on these CDs will depend upon when the CD is redeemed and how terms impacted actual interest payments and can only be determined after maturity.

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 is immaterial 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 Division monthly statements. Current market values can be requested from your FISN Division 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 is immaterial 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 Division monthly statements. Current market values can be requested from your FISN Division 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 is immaterial if CDs are held to maturity. Most CDs are purchased with the intention of holding them to maturity. 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 to sell something. This risk could become a real loss if holdings are actually sold. Market values are estimated on FISN Division monthly statements. Current market values can be requested from your FISN Division Investment Manager. Relative values may rise if more buyers are present and can be reached in a timely and effective fashion.

CALL RISK

Callable investments including, callable CDs, are subject to call risk. Depositors should clearly understand all the call provisions of the CD. This 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 your funds, it will earn a lower rate. Calls cannot be predicted; banks consider only their own needs and costs. Call risk is difficult to evaluate for monthly statements. It is better estimated by requesting your FISN Division Investment Manager to seek out potential buyers for the actual investment position.

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 more products are available. Strategies to lessen this risk are to time investment maturities close to when you might need back the money 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 offered by 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, which 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 security will fall in value. And, if the issuer cannot repay the debt at all, the investment may become 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 matter because the FDIC stands behind the bank. In a default, the FDIC is still there, protecting depositors. When a bank fails the FDIC usually transfers deposits to a viable bank or simply returns the deposit. Both actions occur promptly as is required in the FDIC rules. This risk is avoided by following the FDIC deposit insurance rules and staying insured.
tions occur promptly as is required in the FDIC rules. This risk is avoided by following the FDIC deposit insurance rules and staying insured.

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.

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.

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 

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.