Specialty Certificates of Deposit

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Specialty Certificates of Deposit

Here are some of the most popular variations on certificates. This list is by no means exhaustive.

Stock-index CDs

Stock-index CDs have rates based on the performance of a particular stock index, such as the Standard & Poor's 500 index. This lets investors participate in the growth of that index. Stock-index CDs pay out a certain percentage of the index's growth.

Add-on CDs

Add-on CDs are those that allow the investor to deposit money into them after they have been set up.

Variable-rate CDs

Variable-rate CDs are instruments whose rates move up or down according to changes in interest rates. They were created to keep up with volatile short-term interest rates. A third party sets new rates every 30 days.

Discount CDs

Discount CDs are sold for less than their face values. When they mature, the investor receives the face value. The difference between the face value and the discount price is treated as earnings. For example, a $500,000 CD can be sold for $475,000. When it matures, the investor will receive $500,000, and the $25,000 difference will be treated as earnings.