Market Indexed CD's

[Longhorns]

http://www.patriotbankia.com/pages/bank/indexcd.jsp

Anyone familiar with this product? It's a 5 year CD who's rate of return is equal to 100% of the return of the DJIA.

The CD is FDIC insured, there are no fees (except early redemption fees), and you are guaranteed to receive 100% of your principle back if the DJIA is negative (not that it's very likely to happen after 5 years).

If you were doing a CD ladder, would you consider this as a viable alternative?


A regular 5 year CD right now is yielding 5.50% ($100,000 after 5 years would return $131,650). If you take the lower end of the historical return for the DJIA (say 10% per year) the difference is considerable ($100,000 after 5 years would return $164, 861....more than double the regular CD with ZERO risk!!!).


The more I look at this, something has to be wrong. It would give you the same return as the DIA ETF (actually a slightly better return b/c there are no expenses and no commission fees), and you are at ZERO risk.

Maybe they don't account for dividends?

Thanks in advance.

 

[nkhoi]

**There may be loss of principal if withdrawn prior to maturity

 

[Longhorns]

Quote from nkhoi:

**There may be loss of principal if withdrawn prior to maturity

Thanks nkhoi.

I saw that....but I'm talking about money that is going to be locked away and never looked at for 5 years.

Is this thing legit?

 

[nkhoi]

FDIC insured what else do you want?

 

[Longhorns]

Quote from nkhoi:

FDIC insured what else do you want?

I think there has to be something in the small print (although I can't find a damn thing on the website).

I just find it impossible that you could get all of the upside with none of the risk.

A product like that would make long term index investing pointless...better to just put it in the FDIC insured index tracking CD and have zero market risk.

 

[nkhoi]

just search on dow jones CD

http://www.piscataqua.com/Dow Jones CD/dow_jones_cd_FAQ.htm

 

[Longhorns]

Quote from nkhoi:

just search on dow jones CD

http://www.piscataqua.com/Dow Jones CD/dow_jones_cd_FAQ.htm

That deal is believable because it gives you 85% of the upside with zero risk.

The deal I put up gives you 100% of the upside with zero risk.

That 15% vig would be worth it for the bank. The 100% payout make no sense...the bank guarantees my principle from loss, but takes no profit?

 

[nkhoi]

they will lend out your money imm trying to make more than what they going to give you and banking on the fact that fed has to bail them out if something happens.

 

[AAA30]

They are selling you a call on the market and making a spread on your cash.

 

[nazzdack]

The bank may believe that they can outguess the market and use the inflow and outflow of customer money as a contrary indicator.