CERTIFICATES of DEPOSIT

OVERVIEW   

Step-Up Bonus Rate Callable CDs are FDIC insured and are purchased at the FISN Division of Landolt Securities, Inc. a brokerage firm. The bank pays interest at a fixed rate for each period and then the rate steps-up to a new, higher rate of interest for the next period. Callable CDs generally offer higher rates than fixed rate CDs but in return for this the bank has the right to return the funds early. FDIC insured banks use brokerage firms to distribute their CDs nationwide. The FISN Division of Landolt Securities, Inc. has access to a wide inventory from most Wall Street firms and CD issuers. Investors can select the terms and steps they feel will meet their investment objectives. 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.

STEP UP CD FEATURES

Step-Up CDs pay interest at a fixed rate for each period and then step-up to a new, higher rate of interest for the next period only if the CD is not called. Interest is paid periodically (usually on a semi-annual or monthly) basis into the brokerage account where it can continue to earn interest in a money market fund account. CDs are usually callable at each step-up point. Key information is the interest rate and dates for each step period.

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

CALLABLE CD FEATURES

Callable CDs have an initial non-callable term and a callable term. The interest rate was pre-determined at issue for each step-up period and the rate cannot change until the next step. 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 in connection with the next interest period. 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 term of the CD 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 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.

Typical Product Disclosure for a Step-Up Callable CD

UNIQUE RISKS FOR STEP-UP CDs

Step-Up CDs present risks unique to that style of CD. Step-up CDs will pay an initial rate of interest for an initial period and will “step-up” to a new, higher rate at pre-determined intervals. Step rate CDs may have just one rate step or multiple steps. Investors should be aware of the timing and interest rates of all steps. The risk is that the stepped-up rate may be above prevailing market rates. If the rate is above the 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 and replace it with a lower current market rate. The initial rate from the first step is not the yield to maturity (YTM). The YTM on a step-up CD is always higher and will depend upon when the CD is redeemed and how many steps are actually utilized. Yields on step-rate securities are quoted as yield-to-worst-call (YTWC).Because the calling of a CD after the initial interest rate has been paid during the no-call period, before the higher rate steps are achieved) will being in less income and therefore a lower yield.

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 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 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 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 has no effect 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 call provisions. 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 even though 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 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 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. 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.