Equity linked CDs are fairly new to the marketplace and very popular right now. While the investments might not be for everyone, risk averse investors like these CDs because they allow for the possibility of market growth without the worry of losing your principal in a falling market. Go Banking Rates offers some equity linked CD information in “A Guide to Market-Linked CDs.” Equity linked CDs are also known as market linked CDs, market indexed CDs, and index CDs. They are considered structured investments since they are meant to meet specific investor goals. By offering the potential for long-term growth and the security of traditional CDs, equity linked CDs can be a great investment for many people.
Investors purchase equity linked CDs to diversify their portfolios without taking on a lot of risk. If the market increases, your return increases based on the particular index linked to your investment. Compare equity linked CDs and you’ll find out that some guarantee a base return regardless of what the markets do. With all equity linked CDs though, you will not earn a return if the market performs poorly. The most common ways to calculate the return on equity linked CDs are point-to-point and average. Point-to-point, the simplest method, takes the value of the index at purchase time and the value at maturity and uses that percentage to determine your return. With the average method, many different observation points are used to find an average return over your investment period. There are pros and cons for each investor to research when looking into equity linked CDs.