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Is Your CD Safe?

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is-your-cd-safeYou probably thought all certificates of deposit were safe, until you read about Antigua-based Stanford International Bank, the bank Allen Stanford controlled. To make matters worse for depositors,  the bank was outside the U.S. so deposits were not insured by the Federal Deposit Insurance Corporation (FDIC).

The bank was offering CD rates that were well above the normal going rate, sometimes three to four times the normal CD rate. The SEC decided to look into and go after the bank for this very reason. I'm sure the Madoff ponzi scheme going on for so long had something to do with the SEC acting on Stanford's bank.

Reputable banks in other countries do offer rates higher then current CD rates, though there are risks involved and your deposit won't be insured by the FDIC. You also might have the added risk of the U.S. dollar increasing in value which may reduce your return when you convert your foreign currency back into dollars when the certificate of deposit matures.

Another type of certificate of deposit that differs from a regular CD is a brokered CD. With a brokered CD your deposit is FDIC is insured but if you need to make an early withdrawal, you risk losing interest and some of your deposit as well because the CD is sold in the secondary market.

As with all investments, be sure to know what you're getting into before you invest. Remember the old adage, "if it's too good to be true..."
Author: Jason P. Jones
March 19th, 2009