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About Ken Tumin

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Beware of Websites with Too-Good-to-Be-True CD Rates

With deposit rates so low, many people may be tempted to invest their money with the help of questionable companies. In a recent comment, a person claimed "he invested with a great Hedge Fund that buys large blocks of CDs either FDIC or AAA European Banks. You can get FDIC rates as high as 5.3% APY." I'm not going to disclose the website address. The website claimed that the company has been around since 1999, but I could not find any history of this website on the Internet Archive. They don't claim to be a bank, but they supposedly work with US and European banks to obtain special CD rates. I cannot prove that this company is not legitimate. However, I thought this would be a good time to review a history of scams that have targeted conservative investors.

Recent Ponzi Schemes

Everyone probably remembers Madoff's Ponzi scheme, the largest Ponzi scheme in history. The disturbing thing about this case was that the SEC conducted investigations and weren't able to uncover the fraud. It wasn't until Madoff confessed to his sons in December 2008 that the FBI finally shut down the Ponzi scheme.

Less well known is the Allen Stanford alleged Ponzi scheme which involved Stanford International Bank CDs. According to the SEC, this foreign bank "sold approximately $8 billion of so-called 'certificates of deposit' to investors by promising improbable and unsubstantiated high interest rates."

The Securities Investor Protection Corp. (SIPC) is suppose to protect investors for up to $500,000 in securities and cash in case their brokerage goes bust. However, Madoff and Stanford investors have learned that there are several complications with this protection. Many of Madoff and Stanford investors may not receive anything back.

A much smaller Ponzi scheme involved CDs advertised online that were sold by a supposed Caribbean-based bank. In March 2009, the SEC shut down the "$68 million Ponzi scheme involving the sale of fictitious high-yield certificates of deposit (CDs) by Caribbean-based Millennium Bank."

The important thing to note of these Ponzi schemes is that the investments may appear to be working fine for many years. There may be no signs of problems until the Ponzi scheme goes bust all of a sudden.

Verifying FDIC and NCUA Deposit Insurance

As the above examples show, it can be impossible to know the legitimacy of a foreign bank. That's why I stick with U.S. banks and credit unions which are regulated by state and/or U.S. federal agencies. I described how you can verify a bank or credit union is federally insured by the FDIC or NCUA in this blog post.

There are ways for Americans to invest in foreign currency bank accounts. The best known bank to offer these is EverBank. I reviewed EverBank and two other banks in my post on Chinese Bank Accounts and Other Foreign Currency Accounts. It should be noted that even though the account may be FDIC insured, there may still be loss due to currency value fluctuations.

Investing in CDs without Banks

Not all safe CDs come directly from a FDIC-insured bank or NCUA-insured credit unions. You can get FDIC-insured CDs from brokerages. These are called brokered CDs, and they are available from all the major brokerages. As I described in my brokered CD review, this can be a safe way to invest in CDs especially if you stick with major brokerages like Fidelity, Vanguard and Charles Schwab.

There are also legitimate companies that provide CD placement services which help their clients find the best CD rates at FDIC-insured and NCUA-insured institutions.

There are also many financial companies that get most of their money from selling annuities and other insurance products. To get the attention of conservative investors, some of these companies advertise high-yield CDs in newspapers. They are able to advertise rates much higher than banks by providing a bonus payout that's added to the bank CD interest. The FDIC warned about these advertisements and described how these companies operate in their 2010 consumer news. I reviewed this and added more examples in my post Very High CD Rates Advertised in Newspapers.

Bottom Line

You can get safe CDs through middle men like brokerages and CD placement services. However, these require more homework. It's important to be aware of red flags such as a promises of safe yields that are much higher than the competition. If you want to keep things simple with your CD investments, deal directly with FDIC-insured banks and NCUA-insured credit unions.

Related Pages: CD rates

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  |     |   Comment #1
That is exactly what I wrote to that guy,5.3% c.d fdic insured not a chance.
  |     |   Comment #2
My son claims that his broker is offering him 5.3% 10-year FDIC insured CDs - but they are callable CDs and it is because they are callable that they pay more.  Can this be legit?  Doesn't make sense to me.
  |     |   Comment #3
I was a Stanford victim. Their CD rates were quite good but not outlandishly high. One investor, a prominent developer in our area, went to Antuigua with the head of his accounting department and met for a full day with the Stanford people to examine their position. He concluded it was all OK. Now if they can pass that kind of scrutiny, how is the average Joe like me supposed to know they are not on the level?
  |     |   Comment #4

Make sure they are not step up cds with low rates in the beginning and higher rates in the later years and then they are callabe, I have been offered these they are a gimmick.
  |     |   Comment #5
Gary and Walt--

I guess that I would go with the idea that if it seems too good to be true, then it probably is.


  |     |   Comment #6
To Gary_C

I have been buying callable CD’s for over a decade.  These are usually offered by well known banks such as Chase, etc.  The last one I had was for 7.50% and was called last year.  There are many different callable CD’s that look attractive, but will earn you very little interest in the long run if you are not careful.  For example, most of these CD’s have a guaranteed rate for only one year.  After that almost all of these callable CD’s are linked to specific indexes.  For example, the spread of a 2 year verses a 10 year CMS rate has to be greater or no interest is paid (this is a CD I would run from).  Or the CD can be linked to the 6 month LIBOR rate (which is a far better CD than the first example I gave).  And then some of these callable CD’s are linked to the stock market, foreign currencies, precious metals, etc.  All of the above are FDIC insured as far as the principle is concerned, but you may not ever see any interest beyond the guaranteed period, which typically ranges between six months and two years.  The worse actual interest rate I have received in the past 5 years was 6.125%.  I have always come out ahead in these deals because the banks always call them.  As of today, the best I can come up with is a 6.00% CD guaranteed for only one year.  After that the formula they use (Citi Bank) is not too favorable.  You would also have to lock into a 20 year term.  I’ll definitely pass on this one.  I currently have a 10.00% CD which is callable in June of 2012 and I’m willing to bet the farm it will be called.  I got this CD some time ago and today’s rates wouldn’t justify them continuing this CD.

So to answer your question, the CD your son mentioned may be legit.  But then again, it may not.  So, buyer beware!!!
  |     |   Comment #7
Walt #3:  As per the STanford incident and the prominent investor who seemed to feel it was a good investment, how do you know he wasn't involved and getting a "kickback" for getting others to participate in it?  This is why I stay strictly with institutions I can check out for myself on the internet and banks I can research on the BAnk Find page.  I find being paranoid when it comes to investments is the only way to go.  It may not make us the richest people around but at least we get to keep what we saved.
Mr Sigh
  |     |   Comment #8
The reason why ponzi schemes (and Nigerian Bank Scams and such) flourish even today is for the simple reason that greed (even only "small greed") completely blinds people to the simple fact that has been true since before you were born:


But if you don't believe that, I have a cousin in Nigeria who's really a Prince, and if you provide me with your bank account information, we'll give you 10% of his multi-million dollar fortune...
  |     |   Comment #10
Can someone tell me the names of a "cd placement service", I have never heard of such an entity...
  |     |   Comment #12
in a google search I do see that firm listed, but only that firm so i was curious if this was a known business or is the only one suggesting they are in that business which so far seems to be the case. thanks for getting back to me though, much appreciated
  |     |   Comment #13
What "Richard #6" is referring to is a product known as a Structured CD.  These are not new and have been around for years.  These can be highly complicated and can be dangerous if you do not hold until maturity.  I myself do not like them.  Most CDs do not come with a prospectus.  These do.  Most of these structured products require a brokerage account and are structured in the bank's favor as to when/if interest is paid out.  Buyer beware.
  |     |   Comment #14
To Anonymous #13,

It is true what you have said.  They are highly complicated, but they can be worked to your advantage.  I have been happy pulling my 7.50% interest when everyone else was oohing at their 3.00% CDs.  I would have to say I have skipped over 95% of what is being offer out there because you can easily get burnt.  These investments aren't for everyone, but for me to average over 8.00% per year for these last five years is quite impressive in this rate environment.  With the economy what it is today, those rates are getting harder and harder to find.  Also, at my age, I can't lock into a 20 year CD anymore and hope that it is called.

What you said about the banks is especially true nowadays than they were ten years ago.  Many bank now have dual conditions to be meet to earn interest.  If one does not know what they are doing, those conditions will hardly ever be met.  I have been very fortunate but I don't want to press my luck.  With the Fed manipulating rates (which can affect the interest on these CDs) it's getting to become somewhat of a gamble.  Since my CD won't be called until June I haven't been looking much at the rates.  When I do, they're pretty disappointing.  It is harder to find these CDs, but they are still out there.  Also, I invest solely in America.  I am not going to take a gamble on some foreign bank.

They are with an investment firm, but the commissions are paid by the banks.  I would suggest to anyone interested in these to be very, very careful.  Read all the fine print and make sure you understand everything.  For me, it has been a great money maker.  For others, it could be a disaster.  And I’m pretty confident if I stay in these investments long enough my day for failure will come.  As you wisely pointed out - Buyer beware!
  |     |   Comment #15
WOW - Hard to believe that any conservative investor, like most of us probably are, would have to resort to considering, or even remotely thinking about, investing in a callable or structured CD, in spite of all of the advance warnings and plain common sense.  As far as CD's are concerned, I think I'll stick with the familiar 2%, or so, ones that will lose my buying power and principal on a gradual basis, instead of being ripped off in a 'lose it all at once' situation. What about you?  
  |     |   Comment #16
To Anonymous #15

Well, all I can say is that it has worked for me.  Also, it's not a "lose it all at once" situation as you stated.  Only the interest is at stake.  I have yet to never earn any interest.  As stated in my original post, 6.125% was the lowest amount that I have received.

I did forget to mention a few very important details.  The people who sell these CDs are paid on commission.  They may want to steer you into something that brings them, not you, a maximum return.  One really does need to know what they are doing.  Also, I do not trust solely in the information given to me by an investment firm.  I check out the firm.  Contact the BBB, which in my opinion is a joke, but if they have something negative about the firm, don't go with them.  Last, I write a letter to the Attorney General of the state the investment firm is located.  I find out if there are any complaints, legal actions, or disciplinary actions taken against the company.  If so, move on.

Like I stated earlier, these investments aren't for everyone.  There is a lot of legal mumbo-jumbo in them that one needs to understand.  After my last post I realized that I haven't skip about 95% of the offerings, but over 99% of them.  It’s sort of like trying to find that needle in the haystack.  When you find it you got a winner.  When the banks were trying to recapitalize there were some fantastic deals out there, all FDIC insured.  Once again, those deals are much harder to find and I think this coming June I'll stick with the plain vanilla CDs that banks have to offer.  If I were younger I would continue with what I have been doing these past 15 years.  I really did make a decent amount of money on these deals.
  |     |   Comment #17
Oops, I forgot to put my name on post #16.  It's not "Anonymous" but "Richard" reponding.  Sorry about that!
  |     |   Comment #18

Give me an example  of a structured CD which worked out for you. Which index was it linked to and what had to happen in order to receive these very high rates. Thank you.
  |     |   Comment #19
Richard, or #16, or whatever - 

Thanks for your posts, but, frankly, the more you you post, the more you apologize for leaving something out of your implied secret of success. So, whats the bottom, bottom, bottom line?  Again, most of us are conservative investors and the pitfalls, by your own admission, or inferences, of the investments that you have been so apparently successful with, at least by your own assertions, are not worth the rest of us taking a pig-in-a polk chance. Your claims of success, in light of the cautions that you continually mention, seem questionable. No offense, but make any sense to you? 
  |     |   Comment #20
@ Lou,

The fund that I mostly invested in the past was the USD LIBOR rate.  If the six month rate was 6% or less, I earned the full 7.50% (it may have been 7.25%) of interest for that day.  Right now, the rate is around 0.5%.  Being such, the banks are now paying 5.00% minus the LIBOR rate!  I no longer invest in that index.  The current fund that I presently have has a dual condition of the 30 year constant maturity swap rate minus 2 year constant maturity swap rate.  The 30 year rate must be higher than the 2 year rate.  The time period between January 1, 1995 through January 1, 2010 contains 5,631 days.  During that period the 30 year rate was higher than the 2 year rate 5,618 times.  The 2 year rate was higher during that period 13 times.  So on those 13 days I would not have received any interest.  The second condition on this CD is that the S&P must close on or above 775.  With the exception of the brief period in March of 2009 the S&P has been above 775 since mid 1997.  I opened this in June of 2010 with a set guarantee rate for two years.

@Anonymous #19,

The secret to my success?  Sheer dumb luck!  They were offering attractive CDs when my others were called and I lucked into these.  Honestly, most of the CDs that were offer I thought were suckers rates.  A good first year rate than bam, nothing for the next 14 years.  The CMS Interest Rate Steepener is a good example (in my opinion) of how some banks will try to draw you in.  The rate right now is around 2.00%.  The bank guarantees 5.00% for the first year and then 4 time the CMS rate for the next 19 years!  For most of the year of 2000 that rate was around 0%.  Four times 0 equals 0.  From late 2005 until 2008 that rate hovered around 0.50%.  Four times that amount would give you a 2.00% return.  In my opinion, that's not worth tying my money up for 20 years.  However, I still believe if one takes time to read the risks, evaluate the many number of CDs, and take a chance, one can do well.  The trouble now is these beauties of CDs are history.  That is why my plan is to go back to conventional banks come June of 2012 if they call my CD.  I would be very surprised (and pleased) if they don’t call it.  Forgive me if I implied that I am more knowledgeable than others.  I'm not.  Please don’t ask me what happen to my stock portfolio!  I would have done better throwing money out of my car while driving down the street.  At least someone would have found it and enjoyed themselves.  And no, anonymous, I take no offense at your question.  My success = Right place…right time…good luck.
  |     |   Comment #21
P.S.  One website that deals with these kind of CDs is  If you take a look at it you'll see why I said the majority of offers stink.  However, some of the stock mixed baskets have done very well in the past.  The trouble now is how much the governments are manipulating the markets.

Sorry for all of the posts.  I'm finished now unless someone addresses a question to me.
  |     |   Comment #22
All I can say about financial investment is:

Stay away if it sounds complicated.

Everything is a trade-off of risk and reward.

Yes, if it sounds too good to be true, it is always not true.

Most people just highlight their successes/gains and conveniently forget about their failures/losses (a general remark -- not intended for anyone specific).

  |     |   Comment #23
Hearing the old "If it's too good to be be true..." cliche gets on my nerves.

Back in around 2000 I heard of an online bank called ING Direct that was offering a 5% savings account.  I told everyone I knew about it.  Everyone said "If it's too good to be true..."  Then I read about a credit union called Pentagon Federal with 6% CDs.  I told fewer people this time, but all those I told came back with "If it's too good to be true..."  Way back in the 1990s before internet banking, I tried to tell an elderly relative about this mail order bank called Capital One that was paying twice as much on CDs as she was getting from her local bank.  The response: "If it's too good to be true..."


Yes, I know that the offers from Nigerian oil princes are too good to be true.  I immediately realized that the internet scam from "First Federal Savings, LLC" was too good to be true.  But too many people have cost themselves money by immediately assuming that ANY good deal they hear about is a too-good deal.
  |     |   Comment #25
#23 - Perhaps you would prefer the cliche "error on the side of caution"? Seems appropriate for those folks who do not have a crystal ball.
  |     |   Comment #24
Robert from NYC
  |     |   Comment #26
I bought a CD from Alliance bank that was linked to LIBOR (I beleive - 3 month).

The rate when I bought it as LIBOR plus 2% or something like that. At its peak it was yielding around 7%. Then things began to tank. At it's worst, it dropped 2% in one month, during the crisis of 2008.

So, while I had a couple of great years the last few months were horrible. Luckily, Alliance was brought under FDIC control and of course I was able to opt out of the CD. I only had about 5 bad months and about 25-30 good ones. So, it was a good investment overall.

Still, the risk is always there when you go for the higher yield.

  |     |   Comment #27
What about the recent post about Randolph Bank & Trust in NC?

Their temporary FDIC insurance is set to expire at the end of 2012.  Is that something to be worried about or would it renew automatically?  This 3-yr option didn't seem too-goo-to-be-true, but it was higher than others at the time.
  |     |   Comment #28
No risk no rewards, it may be true, but I do not take risks and will not get rewarded, so my principal is saved and I’m happy with that.
  |     |   Comment #29
most people i know have never dealt with an online bank or even an out of town bank . I've been chasing yields all over the country even before the internet age
  |     |   Comment #30
An update on the Stanford case:

On Monday, Allen Stanford heads to court in Houston to battle charges that he operated a $7 billion Ponzi scheme from Stanford International Bank Ltd, his offshore bank on the Caribbean island of Antigua.   A native Texan who was knighted by the government of Antigua in 2006, he is accused of misleading investors about certificates of deposit (CDs) issued by his offshore bank, in one of the biggest white collar fraud cases since Bernard Madoff. 

The CDs were touted as safe, with funds "generally invested in investment grade bonds, securities and foreign currency deposit," according to literature distributed by Stanford's brokerage firm.  Instead, prosecutors allege, Stanford invested CD proceeds in illiquid pet-project investments that included Caribbean real estate, a Cowboys and Indians magazine and a pawn shop operator. He also loaned more than $2 billion to himself.

He may be "broke, sick and lonely", but I doubt any of his victims have much sympathy for him.
  |     |   Comment #31
The Structured CDs my bank is offering are FDIC insured and supposed to be in bond funds.  Can they guarantee an interest rate on these?  From what I have read, one has to wait until the maturity date to find out what you have earned.  Is that correct?  I guess we also can't get monthly checks out of these like we can with regular CDs.   Thanks for any info.
  |     |   Comment #32
Paoli2, A local bank was offering a structured CD based on the performance of several stocks the bank gurus picked for a year's period.  The FDIC guarantee was on the principle only with no guaranteed minimum return but a maximum CAP.  This sounded so much like it was a program designed for the bank to "play" with my money with little or no risk on their part.   

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