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| FOR IMMEDIATE RELEASE February 7, 2001 |
Contact: Bill
Teets at (614) 644-7187 |
INVESTORS WARNED ABOUT “CALLABLE” CERTIFICATES OF DEPOSIT
State Securities Officials Say Elderly Investors Unwittingly Buying Long-term CDs
With stock market volatility on the rise and investors looking for safe places to park their money, some stock brokers are pushing elderly investors to buy higher yielding "callable" certificates of deposit with 10- to 20 -year maturities, state securities regulators warned today.
"Not all CDs are created equal, so investors need investigate before they invest by asking questions to understand exactly what they're buying," said Ohio Securities Commissioner Debbie Dye Joyce. Callable CDs often yield more than traditional bank-issued CDs, but they come with strings attached, she noted. "If someone promises you an above-market return, be skeptical and ask lots of questions," she added.
Federally insured certificates of deposit, sold either by banks or brokers, have long served as a safe harbor for investors worried about stock market volatility. Rising interest rates and the falling stock market have made CDs more attractive, especially to older investors. But what many investors don't realize - and some stockbrokers apparently aren't adequately disclosing - is that with "callable" CDs only the issuer, and not the investor, can "call" or redeem the CD. Investors who want their money before a "callable" CD matures risk a substantial loss, regulators warn.
While the Ohio Department of Commerce’s Division of Securities has taken no enforcement action as yet involving “callable” CDs, the division is concerned that these investments are being offered to Ohioans.
State regulators in Iowa say a retiree in her 70s invested more than $100,000 of her 97-year-old mother's money in three "callable" CDs with 20-year maturities. Her intention, she told her broker, was to use the money to pay her mother's nursing home bills. While, as in many cases, the monthly statements disclosed that the CDs were long-term, the word "callable" may have left the impression the investment could be redeemed after one year. In Texas, an 85-year-old retired truck driver spent $100,000 on a 20-year CD. When he tried to redeem the CD after one year, the broker gave him the option to sell - at a $30,000 loss. The broker - who still advertises the CDs in the paper - has yet to follow through on a promise to refund the original investment.
Similar complaints, many involving large national and regional brokerage firms as well as independent CD brokers, have been filed with state securities regulators across the country. Also receiving complaints are the Securities and Exchange Commission and the National Association of Securities Dealers.
Callable CDs are being marketed via newspaper ads, telephone solicitations and direct mail. In some print ads, regulators note, the CD's interest rate is trumpeted in large print while the instrument's maturity date is buried in small type. Regulators are concerned that some elderly investors are vulnerable to high-pressure sales tactics and may be confused by technical jargon.
Before purchasing any CD, Commissioner Dye Joyce urges investors to learn:
· its maturity date,
· where the money will be deposited
· the penalties for early withdrawal or costs associated with selling before maturity
· whether the interest rate is fixed or variable.
For more information regarding “callable” CDs, visit the FDIC website at:
http://www.fdic.gov/consumers/consumer/news/cnfall00/BankCD.html
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