Standard CD Disclosure Statements
Some CDs have disclosures (Disclosure Supplements) 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 Disclosure Supplements include Market -Linked or Floating Rate CDs. If there is a separate Disclosure Supplements (known as a Disclosure Statement) for a CD it will have a "Disclosure Supplements" link with the offering. Look for the Disclosure Supplements for each deal with a Disclosure Supplements 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 Disclosure Supplements for secondary market CDs but cannot guarantee availability.
Fixed Rate, Fixed Term CDs are issued by FDIC insured banks and are purchased at the FISN Division of Landolt Securities, Inc. a brokerage firm. 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
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
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.
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 peiodic (usually 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 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.
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
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.
UNIQUE RISKS FOR FIXED RATE, FIXED TERM CDs
Fixed Rate, Fixed Term CDs present few unique risks. These CDs are traditional CDs with an established fixed rate for a fixed term. There are no steps or calls to these CDs. Investors should be aware of the rate, the frequency of interest payments and the maturity date. The risk is that the CD rate may be below the prevailing market rates for similar CD terms. If the rate is below the current market, the investor has lost the opportunity to earn a higher return. Since Early Withdraws are not available for brokerage CDs, the only way to get your investment back and capture a higher rate is to sell the CD at a market price, which will probably generate a loss. Such a loss could be compared to an Early Withdraw Penalty but the loss could be greater if rates have risen significantly and your realize a very low price for the CD.
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.
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.
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.
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.
Certificates of deposit held in brokerage accounts do not have early withdrawal rights for reasons other than death of the owner or joint owner.
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.
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. The FISN Division of Landolt Securities, Inc. 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.