Gold fever has spread to certificates of deposit. As the yellow metal hits new highs, many banks are offering CDs that are tied to the price of gold. The pitch is seductive: Share in the rising value of gold and, if the commodity tanks, you'll get your principal back and maybe even a little interest.
But gold-indexed CDs are complex. The terms of the CDs vary widely, depending on interest rates and the price of gold at the time the certificate is issued. Each CD has its own formula for calculating the rate, and each has different rules on whether you may sell the CD before it matures. And if gold appreciates too much, you may have to settle for a puny yield -- or none at all.
To get an idea of how these critters work, consider a gold-indexed CD from SunTrust Bank. When the five-year CD was issued in October, gold was priced at $1,000 per ounce. Returns are calculated at six-month intervals: If gold rises to $1,900 per ounce or less over the five-year term, holders of the CDs earn the price gain, up to an annualized 13.7% return. If gold falls below $1,000 per ounce or rises above $1,900 per ounce during the period -- not just at maturity -- CD holders earn an annualized 2.3% return. That compares with a recent 2.9% annual yield, on average, on a conventional five-year CD. MMajor issuers of gold-indexed CDs include big banks, such as Barclays, JPMorgan and SunTrust. The CDs typically come in three- to five-year maturities, with $1,000 minimums, and are insured by the Federal Deposit Insurance Corp. up to $250,000 per account.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
"Indexed CDs are often linked to the investment du jour," says Greg McBride, senior analyst at Bankrate.com. With gold on a tear (up 36% for 2009 through December 4), banks are issuing even more gold-indexed CDs. But there are better and simpler ways to put gold in your portfolio.
-
It’s Tax Day: Is the Post Office Open Late?Tax Filing Tax Day is here and some people need to mail their federal income tax returns.
-
Need to Build an Emergency Fund? Seven Steps to Get ThereHaving a safety net can mean peace of mind on top of being able to maintain your lifestyle if a financial emergency strikes.
-
Best Banks for High-Net-Worth Clientswealth management Kiplinger's 2023 list of the best banks for higher-net-worth clients.
-
Stock Market Holidays in 2024: NYSE, NASDAQ and Wall Street HolidaysMarkets When are the stock market holidays? Take a look at which days the NYSE, Nasdaq and bond markets are off in 2024.
-
Stock Market Trading Hours: What Time Is the Stock Market Open Today?Markets When does the market open? It's true the stock market does have regular hours, but trading doesn't necessarily stop when the major exchanges close.
-
Bogleheads Stay the CourseBears and market volatility don’t scare these die-hard Vanguard investors.
-
I-Bond Rate Is 5.27% for Next Six MonthsInvesting for Income I-Bonds issued November 1, 2023 through April 30, 2024 will have a rate of 5.27%.
-
What Are I-Bonds?savings bonds Inflation has made Series I savings bonds enormously popular with risk-averse investors. So how do they work?
-
This New Sustainable ETF’s Pitch? Give Back Profits.investing Newday’s ETF partners with UNICEF and other groups.
-
As the Market Falls, New Retirees Need a Planretirement If you’re in the early stages of your retirement, you’re likely in a rough spot watching your portfolio shrink. We have some strategies to make the best of things.
