Dedicated to Deposits: Deals, Data, and Discussion

EverBank's MarketSafe Diversified Metals CD

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EverBank

EverBank has long offered a variety of MarketSafe CDs. Their latest version is called MarketSafe Diversified Metals CD. It's not the typical CD in that there is no guaranteed rate of return. However, it does guarantee an APY over 5 years of between 0% and 8.45%. If the prices of the metals go up substantially over 5 years, your return will max out at 50%. That's an annualized yield of about 8.45%.

The details of the CD are described at EverBank's MarketSafe Diversified Metals CD page. Here's a summary of the CD's features as described by EverBank:

  • 5-year term
  • $1,500 minimum deposit
  • 100% Deposited Principal Protected
  • Funding Deadline: June 24, 2010
  • Issue Date: July 07, 2010
  • FDIC insured
  • Account Types: Personal, Business, IRA

The details of the amount of the CD payment at maturity are described in EverBank's MarketSafe Diversified Metals CD Term Sheet. Please refer to this Term Sheet to see how they come up with their maturity payment. It's based on the prices of gold, silver and platinum. However, it's based on quarterly prices and not the final prices at maturity. The final CD payment amount will equal:

  • 100% of your deposited principal plus the Market Upside Payment maxed out at 50%, OR
  • 100% of your deposited principal if no gain in market performance

Expectations for Gold, Silver and Platinum

One might think these metals should perform well over the next several years due to all of the government spending. However, some see a bubble that's similar to what happened in the early 80's. I've found some charts of the performances of these metals over the years:

You can see the YTD performances of these metals here.

Some Downsides:

No early withdrawal is allowed. If you die, your heirs can take an early withdrawal but there is no principal protection. Here's how EverBank describes this:

Except in the event of death or adjudication of incompetence of the holder of the MarketSafe CD, you may not withdraw any part of the CD prior to maturity. If you do withdraw early, even if that is due to the death or adjudicated incompetency of the holder of the CD, you will NOT receive Principal Protection and will NOT benefit from any upside potential of the Reference Index, experiencing a loss of principal as an early withdrawal charge.

If held outside of an IRA, the tax consequences of this CD seem complicated. It appears you are taxed yearly even though the rate of return is unknown until maturity. Here are the details as described in EverBank's Terms & Conditions page

Tax Considerations. For United States Federal income tax purposes, EverBank intends to treat a MarketSafe CD as a "contingent payment debt instrument" subject to taxation under the "noncontingent bond method." Accordingly, a U.S. holder of a MarketSafe CD will be required to accrue interest income on a MarketSafe CD in its gross income each year on a constant yield to maturity based on a comparable yield in accordance with the original issue discount rules (subject to adjustment to reflect differences between actual and projected payments). The depositor should also be aware that, for purposes of calculating the interest, if any, payable on the MarketSafe CD(s) at maturity, the appreciation in the investment will be determined based upon the Product Calculation Rules noted in the Term Sheet, and treated for U.S. federal income tax purposes as ordinary income, not capital gains.

Index Linked CDs - Can They be Good Deals?

In a previous post on Equity-Index CDs (or equity linked CD), I described how you can build your own equity-index CD with a combination of a stock mutual fund and a 5-year regular CD. The same could be done with metals. One could buy a gold ETF and other metals ETFs in combination with a regular 5-year CD. However, this approach may not give you the same benefits as EverBank's MarketSafe CD. In his blog TheFinanceBuff wrote an informative case study on index linked CDs. Here's an excerpt:

If you try to match the downside protection by putting a large percentage of the money in a plain vanilla CD, you won’t be able to match the upside potential of an index linked CD. If you try to match the upside potential, you leave the downside exposed.

I can't say if this EverBank CD is a good deal or not. It is an interesting CD, and when rates are so low, it's nice to have some alternatives to the plain CDs.

FDIC/Financial Overview

EverBank's ratings for safety and soundness are a little above average: 4 stars (excellent) at BauerFinancial, 3 stars (performing) at Bankrate.com and an overall health score of 4 out of 5 at DepositAccounts.com (see our Everbank rates and reviews page). Bankrate's ratings are based on 12/31/09 data. The ratings for both BauerFinancial and DepositAccounts.com are based on 3/31/10 data. EverBank has been a FDIC member since 1998 (FDIC Certificate # 34775).

Edit 6/7/10: Fixed pricing info to avoid confusion.

  Tags: EverBank, CD rates, IRA rates

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Comments
7 comments.
Comment #1 by Anonymous posted on
Anonymous
You forgot a </tr> tag when closing your table. This breaks the site in Gecko browsers such as Firefox and Camino.

0
Comment #2 by Anonymous posted on
Anonymous
Bad deal.  You don't participate fully in the upside (even to 50%) -- rather you participate to the extent of an "arithmetic average over 20 calendar quarters."    This means, for example, if the price of the metals goes down in the beginning, but then goes way up at the end, you still may receive nothing. 

1
Comment #3 by Anonymous posted on
Anonymous
"In summary, the payment will be based on the average of 20 quarterly price gains of gold, silver and platinum." -- this is an incorrect statement.  You get paid based on the average of 20 PRICING DATES, not the average of 20 quarterly price gains.

-Same as previous poster.

2
Comment #4 by KenBDG posted on
KenBDG
Thanks for the clarification over the quarterly pricings. That's a good point about how low prices in the early years can lower the payment at maturity. I've updated the post to rely on EverBank's Term Sheet to show how this averaging is done.

2
Comment #5 by LADY MARMALADE (anonymous) posted on
LADY MARMALADE
TO NUMBER 1 WHAT ??????

-2
Comment #6 by Anonymous posted on
Anonymous
BAD deal with capital letters!  Your money gets tied up for years, and you do not substantially participate in the upside of the metals.  As hyperinflation takes hold, all fixed income investments, like bank accounts, bonds, annuities etc. will become relatively worthless.  The dollar is NO store of value at all.  BUY GOLD and buy it directly.  Best to do it, of course, on the next crash because the price is volatile, but buy it.  Putting money into long term CDs is a fool's game.  Only money market accounts should be dealt with.

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Comment #7 by TFB (anonymous) posted on
TFB
As others have pointed out, the quarterly averaging calculation method makes this CD less appealing than the point-to-point index linked CD I analyzed in my article linked in this post. Quarterly averaging adds risk. If the metal prices go up and then fall down to flat, you are better off with quarterly averaging. If they go down and then up or go up in a semi-straight line, the average will be substantially lower than the end point. I would only buy an index linked CD with a point-to-point calculation method.

2