That 'safe' CD you're holding could be losing money
The continuing quest for yield at a time of low and negative interest rates is causing tumult in an unlikely corner of the market.
Certificates of deposit, a fairly sacrosanct investment where capital is preserved on the promise of modest but positive returns, are in some cases leaving investors flustered. A comparatively new and increasingly popular product known as a "structured" CD is luring investors with promises of better-than-normal returns that often fall short, according to a report Wednesday in The Wall Street Journal.
Conventional CDs are tied to interest rates and require investors to lock up the money for designated periods of time. Structured CDs are linked to performance of a basket of stocks but limit gains more than they protect against declines, the newspaper reported.
The Journal reviewed nearly 500 structured CDs and found that more than half offered returns less than a conventional CD, but carried higher fees. While there are cases when owners make out quite well, investors sometimes can suffer not only poor returns but also actual losses of capital, when accounting for the cap-floor difference and fees.
Investors held $22.7 billion worth of structured products as of August, a surge of 36 percent since 2012, according to StructuredRetailProducts.com, the Journal story said.
Read the full Journal report here.