JONESBORO STATE BANK 5.100000 12/13/2032 Callable CD At Fidelity

intduck2 | Dec 2, 2022 | 12 posts since 2014

What does everyone think of the 10 year 5.10% callable CD from JONESBORO STATE BANK at Fidelity? It pays monthly.

I do not care if it gets called. That would free my money for something else if it does get called, and in the meantime it pays interest monthly.

What other disavantages can anyone think of?

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Answers

JINAYAKO | Dec 4, 2022 | 26 posts since 2022

I think you are wrong in your thinking. SECURITY IS NUMBER ONE. Deposit Accounts says it is B for safety. The bank is very small with 19 employees and only one branch. Over the 10 years the rating could drop down to D, but your money is locked. Check the Kroll Rating too, if you can find it. Even if any bank is FDIC insured, be very careful. Every month so many banks are closed by FDIC. These ratings are dependent on the financial date put out by the bank. Later the courts can take more than a few years to pay you your principal. The interest payments stop immediately. In US Home builders start banks because they need money for their projects. Later the banks are closed for abuse of money. Remember even our US government is now over leveraged, so be very very careful where you put your money. All for lousy 5% Greed. Go max up to 5 years so you can get your, money back safely. This bank is very small.

NFO | Dec 12, 2022 | 66 posts since 2022

A court doesn't authorize return of insured principal; the FDIC does. This is the verbatim text from the FDIC site:

"In the unlikely event of a bank failure, the FDIC responds in two capacities.

First, as the insurer of the bank's deposits, the FDIC pays insurance to depositors up to the insurance limit. Historically, the FDIC pays insurance within a few days after a bank closing, usually the next business day, by either 1) providing each depositor with a new account at another insured bank in an amount equal to the insured balance of their account at the failed bank, or 2) issuing a check to each depositor for the insured balance of their account at the failed bank.

In some cases—for example, deposits that exceed $250,000 and are linked to trust documents or deposits established by a third-party broker—the FDIC may need additional time to determine the amount of deposit insurance coverage and may request supplemental information from the depositor in order to complete the insurance determination.

Second, as the receiver of the failed bank, the FDIC assumes the task of selling/collecting the assets of the failed bank and settling its debts, including claims for deposits in excess of the insured limit. If a depositor has uninsured funds (i.e., funds above the insured limit), they may recover some portion of their uninsured funds from the proceeds from the sale of failed bank assets. However, it can take several years to sell off the assets of a failed bank. As assets are sold, depositors who had uninsured funds usually receive periodic payments (on a pro-rata "cents on the dollar" basis) on their remaining claim."

IGR | Dec 3, 2022 | 580 posts since 2020

small, obscure bank
unspectacular rate
10 years term
no reliable access to funds in case of the emergency
no security of direct FDIC insurance, and on and on...
but you are right, if it gets called it is not the worst possible scenario

twinlabs | Dec 3, 2022 | 131 posts since 2022

this from the Fidelity website:

"Call Risk
The issuer of a callable CD maintains the right to redeem the security on a set date prior to maturity and pay back the CD's owner either par (full) value or a percentage of par value. The call schedule lists the precise call dates of when an issuer may choose to pay back the CDs and the price at which they will do so."

So the issuer doesn't have to give you back the full original investment?

alan1 | Dec 3, 2022 | 877 posts since 2015

twinlabs asks: "So the issuer doesn't have to give you back the full original investment?"

Correct, for certain callable securities.

1. Callable securities are generally callable at par. So, if the investor's "original investment" was purchased at a price lower than par, the investor will.receive more than the "original investment". If the investor's "original investment" was purchased at a price greater than par, the investor will receive less than the "original investment".

2. Additionally, for certain callable securities, the issuer is not required to pay the par value. The issuer is required to pay a call premium plus the par value.

As Fidelity correctly stated: "The call schedule lists the precise call dates of when an issuer may choose to pay back the CDs and the price at which they will do so."

I am unaware of any callable CDs where the issuer gets a call discount and thereby can pay less than par.

Sardonic | Dec 3, 2022 | 34 posts since 2022

Hard for me to get excited about callable CDs. Just feels like they're going to pull the rug out from under you when rates inevitably decrease and your 5% CDs actually become a good deal.

Evil_Capitalist | Dec 11, 2022 | 157 posts since 2022

I don't consider callable CDs a viable source of fixed income investment. Why take on the stress and uncertainty in a sector that should be secure and predictable? (Call Protected/Locked in APY or nothing)

Not to mention that the bank in question here is the kind that is notorious for rug pulls.

sams1985 | Dec 2, 2022 | 781 posts since 2022

The only real disadvantage is if rates go back up after the FFR goes up and you start seeing non-callable CD's in that range. But i guess in that situation, the bank wont call your CD anyway till rates go back down.

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