Certificates of Deposit (CDs) are time deposits issued by banks and savings associations. CDs are generally issued in $1,000 increments and are available in a wide variety of maturity dates, ranging from as short as one month to as long as 20 years. In addition to offering monthly, quarterly or semiannual interest payments, CDs offer a variety of coupon structures, some of which are callable at the option of the issuer.
Certificates of Deposit also offer:
Safety of Principal: CDs of any one issuer available through UBS are insured by the Federal Deposit Insurance Corporation (FDIC) up to a maximum of $250,000 aggregate principal and accrued interest in non-retirement accounts.1 The maximum coverage for CDs of any one issuer held through an IRA, self-directed 401(k) plan, Keogh plan and a Section 457 plan is $250,000. Expanded FDIC coverage may be obtained by purchasing CDs from multiple issuing institutions.
Preservation of Estate Assets: Another valuable feature of CDs is commonly referred to as the survivor´s option (or estate feature), which is designed to help preserve estate assets.2 This provision allows for the full withdrawal of the principal and interest in the event of death or adjudication of incompetence of the beneficial owner, regardless of whether the current market value has fallen.
CDs may help investors pursue their investment needs and goals while also providing principal protection. Our Financial Advisors have access to CDs issued by hundreds of issuing banks and can help determine which type may be appropriate for you.
1 UBS Financial Services Inc. does not provide tax or legal advice. Please consult with your tax advisor regarding the suitability of CD investments in your portfolio. CDs present certain investment risks that you should discuss with a Financial Advisor prior to making an investment decision. Redemptions of CDs prior to the maturity date may result in significant loss of principal due to changes in interest rates and limited liquidity of the CDs in the secondary markets. Each CD is a deposit obligation of a U.S. depository institution and a minimum deposit of $1,000 is required. Interest paid on the CD cannot remain on deposit at the depository institution and will be paid to the depositor according to the terms of the CD.
FDIC insurance coverage is limited for each depositor. Investors with certificates of deposit from the same institution but which are held in multiple accounts or firms must verify that they do not exceed their aggregate insurance limit for their combined deposits. Total deposits (principal plus interest) that exceed the specified maximum are considered uninsured for the excess. Furthermore, CDs purchased at a premium (a price above par) are only FDIC insured up to par value. Any premium paid over par value is not FDIC insured.
FDIC insurance maximum coverage: certain retirement accounts are insured up to a maximum of $250,000 for all deposits per issuing institution and held in the same legal capacity in IRAs, self- directed 401(k) plans, Keogh plans and Section 457 plans. Non-retirement accounts are insured up to a maximum of $250,000 per depositor for all deposits held in the same legal capacity at the same depositor institution.
FDIC insurance coverage for trust accounts varies depending upon several factors, including but not limited to trust type, trust ownership, number of beneficiaries and relationship of beneficiaries to the trust owner. Trust owners should consult with their legal advisors to determine how FDIC insurance applies to their particular trusts. If you have a trust account, you and your legal advisor may contact the FDIC at 877-275-3342 for more information or visit their website at www.FDIC.gov.
2 Subject to our firm's arrangement with the depository institution and the type of account in which the CD is held.
Secondary Market Risk – The secondary market for CDs may be limited. While UBS currently intends to make a secondary market for all CDs purchased by clients through the Firm, it might decide at any time not to make such a market for any such CD or discontinue doing so without providing notice to clients.
Furthermore, CDs purchased at a premium in the secondary market are FDIC-insured only up to par value. Therefore, any premiums in the estimated value on a statement are not insured. In addition, if a CD is sold prior to maturity, the price received may be less than the price originally paid at purchase.
Market Risk/Interest-Rate Sensitivity – Typically, CDs purchased through a broker/dealer and later sold prior to maturity are subject to market conditions at the time of sale. As a result, the price received at the time of a pre-maturity sale may be lower than the client´s original purchase price, particularly if interest rates have risen between the time of the original purchase and the time of sale.
Reinvestment Risk – Upon maturity or pre-maturity liquidation, a client may be confronted with a less-favorable interest-rate environment than the one that existed when the CD was purchased.