Equity Linked CDs Combine Investments

According to “Market-Linked CDs Represent a Hybrid Between CDs and Stocks,” Richard Barrington of Money Rates says that equity linked CDs are a nice combination of the two investments.  They offer some stability like traditional certificates of deposit along with the chance to participate in the upside of the stock market.  Equity linked CDs are FDIC insured and you are guaranteed a return of your principal investment if you hold the CD to maturity.  You also get a return based on the stock market’s performance over the time you had your CD.

Each CD has its own specific terms and those are important to know in detail before making the investment.  The equity linked CD criteria you should know consists of which specific stock index your CD is linked to and what the participation rate is.  It won’t be 100%, but the higher the rate, the better.  You also want to see if there is any cap on your gains, how your gain is calculated, and how solid your guarantee will be.  Make sure that FDIC insurance covers your total investment so you don’t only rely on the solidity of the bank offering your CD.  The key in selecting an equity linked CD is knowing exactly what your terms are and how the product will work for you.

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