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 Certificate of Deposit (CDs) |
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Description
A certificate of deposit (CD) is a deposit of cash with a depository institution that carries a fixed interest rate and maturity date. Brokered CDs allow you to either hold the CD to maturity or redeem the CD prior to maturity at prevailing market rates, which may be higher or lower than the original investment. Market prices will vary according to market conditions and you may receive more or less than the original purchase amount if the CD is redeemed prior to maturity. In periods of rising interest rates, you may lose part of your original investment due to early redemption.
Market Index CDs are deposits of cash with a depository institution that carry a variable interest rate and a fixed maturity date. Unlike traditional CDs that pay a fixed rate of interest, Market Index CDs pay interest based on the rate of appreciation of a stated equity market index.
Market Index CDs are highly illiquid and are typically held to maturity. They are also callable, meaning they may be redeemed at the issuers' discretion prior to maturity for a stated rate of interest. The call feature serves as a cap on the amount of interest the bank must pay you in the event the market index appreciates significantly over certain intervals while the CD is outstanding.
In addition, although you receive no current income during the holding period, you will be required to pay ordinary income taxes over the term of the investment based on an estimated annual accretion of approximately 6%. This rate is not related to the performance of the index but is the average yield of a CD of the same maturity. These annual tax payments will reduce ordinary income tax consequences upon liquidation.
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Benefits
Enjoy tax-advantaged income and lower investment risk when diversifying your investment portfolio.
This flexible investment is available in a variety of maturities so you can choose the time frame that works best for you.
Brokered CDs offer you access to CDs from around the country, often at higher rates than can be found at local banks.
You enjoy growth potential because Market Index CDs allow you to participate in stock market returns up to the limit provided by the call feature.
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Features
Income from interest and repayment of principal is generally regarded with a high degree of safety. Just like CDs purchased directly through a depository institution, brokered CDs are FDIC insured up to $100,000 (principal and interest).
If circumstances change, Legg Mason maintains a secondary market in all CDs that it has offered. You are not locked in until the CD matures. CDs can have maturities from 3 months up to 20 years.
The cost of investing in CDs through Legg Mason requires a minimum investment of only $1,000. Market Index CDs generally have deposit amounts as low as $1,000
For Market CDs, income from interest and repayment of principal is generally regarded with a high degree of safety because, like traditional CDs, they are FDIC insured up to $100,000 (principal and interest). However, no interest is earned or credited on the CDs for any purpose, including FDIC Insurance, until the maturity date (or call date).
You receive either monthly or semi-annual payment coupons.
With Market CDs, you receive payment of principal and interest at maturity.
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Related Products/Services
Collateralized Mortgage Obligations
Defined Portfolios
Government Agency Securities
Mortgage Pass-Through Securities
Municipal Securities
Preferred Securities
U.S. Treasury Securities
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