Warnings about Fraudulent High-Rate CDs

The Financial Industry Regulatory Authority (FINRA) issued an investor alert on May 28, 2014 regarding CDs offering what it calls "outsized interest."

FINRA warns that fraudsters might contact you through emails or phone calls with promises of high interest rates from banks, brokerages, and other financial outlets. You should be careful with any contact you haven't initiated, especially if it's from a business with which you've had no dealings.

FINRA cites two recent examples of attempted fraud. In the first, the offer supposedly originated with a bank in the U.S., which was selling a high-rate CD in conjunction with an international bank. This CD promised a 15 percent return when, FINRA points out, customers could expect only one percent interest on legitimate offers from U.S. financial institutions.

The second scam involved phishing, which is an attempt to obtain personal information, including financial information, through fake emails or phone calls. In this case, the fraudster on the telephone used the name of an actual brokerage, and promised details about a CD with interest rates that were "well above the best rates in the market."

According to FINRA, some indications that a CD offer is not legitimate include:

• Higher interest rates than the current average
• Emails with addresses that do not belong to the business listed in the offer
• Poorly-written emails containing misspelled words and mistakes in grammar
• Offers from banks in the U.S. that have partnered with international banks
• "Limited time only" offers
• Deals that are supposedly aimed at the phony financial institution's "best customers."
• These deals are earmarked by very large investment requirements, for example, $100,000.

FINRA advises that you never give your personal information, or okay any fund transfers, to any person or business you haven't investigated. If you're in doubt about the legitimacy of a call or an email, get in touch with the customer service department or compliance department at the business.

Get the contact information from the business's website, not from a link in an email, or from a current phone book. If your financial institution is mentioned in the offer, use the contact information from your current statement, your debit card, or your credit card.

In this 2011 blog post, I reviewed some of the infamous fraudsters who created ponzi schemes to steal money. As I mentioned in that post, it’s a good idea to verify the institution that you’re dealing with is insured by the FDIC or NCUA. There are cases when a company is acting as a middleman. Those are often legitimate, but it is worthwhile to be cautious.