On Mar 11, 3:05 pm, Hugh Clary <badin...@[EMAIL PROTECTED]
> wrote:
> I have a $12k cd that is maturing, and the new rate
> is not going to be as attractive as what I enjoy now.
> Looking around for alternatives, I see the page below:
>
> http://www.fisn.com/rates.htm#FixedRateCallableCDs
>
> Obviously, this appears interesting at first blush, but
> one assumes it won't entail a free lunch. Is anyone here
> familiar with such options and what their downsides are?
The callability is a big negative to me. IF:
1. Future rates remain the same - no problem.
2. Future rates fall - The company will call the bond... uh, I meant
"CD". They can issue CDs at the new, lower rates and therefore decide
that it is not in their best interest to keep paying you an above
market rate.
3. Future rates rise - The company will not call the bond. They are
tickled pink that they can pay you less than market rates. You attempt
to sell the CD but find that you have to sell at a principal discount
to entice buyers into accepting the lower than market interest rate.
The callability and the lack of liquidity essentially makes this a
bond, regardless of the "CD" title.
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