High-yield CD’s offer higher interest rates than other bank products. What the promoters of these high-yield CD’s don’t tell you is that the commissions are much higher than bank CD’s.
The Financial Industry Regulatory Authority (FINRA) recently issued an investor alert to warn investors that some companies are now using marketing ploys in which a high-yield CD is used as a bait and switch tactic. The ploy is to sell you a high-commission fixed or equity-based annuity, which is not FDIC insured, when your intention was to buy a CD.
Part of the marketing ploy is that the high-yield CD’s includes a “bonus” paid to you. This bonus is an incentive paid by the company to get you in the door so that you can hear a pitch for another high-commission product.
If you say “no” to the additional product being pitched, the company often will refer you to a bank where you will get a CD at the average interest rate. The company will then pay you a bonus, the difference between the CD rate offered by the issuing bank and the promotional rate that got you in the door.
If you say “yes” to the additional product, the company is attempting to you sell you – typically, a high-commission annuity – you’ll likely get a break on the cost of buying the annuity with some approximated discount. The purported discount will be close to the interest and bonus you would have earned from the CD alone. You still pay the commission for the annuity, however.
FINRA recommends that you always check out your securities broker at BrokerCheck, and research him or her with your state insurance commission, because some annuities are insurance products and the broker/agent may show up on BrokerCheck.
In sum, the major risk of buying high-yield CD’s is a pitch to sell you other high-commission products such as annuities, which are not FDIC insured.
If you have purchased a high-yield CD, or have been sold an annuity when you thought you were only buying a CD, contact the securities and annuities lawyers at McCabe Rabin, P.A. for a free consultation at 877-915-4040.