Everbank Offers Diversified Metals CDs

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EverBankWhen it comes to interesting and innovative banking products, Everbank has always led the pack. With some banks you get the same vanilla options – checking, money market, savings, CDs. Reward checking is rare and “exotic” CDs are even rarer (how many banks offer one of the non-standard CDs?).

Recently I received an email from them about a 5-year diversified metals CD. The basic idea is that it’s a principal protected CD with a 5 year term that appreciates if the price of gold, silver and platinum increase. If there is no gain, you receive your principal back.

Investment Return

The return is a simple equation, take the arithmetic average of the twenty quarterly pricing dates for each metal and divide by the initial price of that metal. The CD will have equal exposure to each metal, so divide that value by three and sum the results. That’s the final price against which the original is compared. It’s explain in this term sheet.

In English, your gains are the difference between the price on July 1st, 2010 (when the CD will close) and it’s the average price of each commodity, taken every quarter for the next five years.

What’s the catch?

The catch is that your upside is maxed out at 50% of your investment. If the mix of gold, silver, and platinum appreciates beyond 50%, you don’t receive anything more than 50%. If you are maxed out at 50% across five years, that comes out to be 8.45% APY each year (the highest 5-year CDs yield 3.00% APY now). You have downside protection, so you won’t lose money, but your upside is limited.

Another big difference between this MarketSafe CD and regular CDs is that you cannot withdraw any part of the CD before maturity unless you die (or a judge deems you incompetent). The minimum is $1,500 and you need to fund it by June 24th to meet the July 1st deadline. There are no account maintenance fees.

Whether or not this is a good investment is left to you to decide but it’s an option available until June 24th when the CD is closed.

{ 8 comments, please add your thoughts now! }

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8 Responses to “Everbank Offers Diversified Metals CDs”

  1. DIY Investor says:

    I’m amazed that these CDs can even be offered, given all of the hullaboo about derivatives, and that they are backed by FDIC!

    If people want to speculate in precious metals let them buy them directly and hedge their bets at the same time. This is another product to get people to take on risk because of a controlled low rate environment engineered by the Federal Reserve.

    Another sign that gold prices are close to breaking.

    I say let’s have CDs based on subprime mortgages and interest rate swap levels and just get it over with.

    • NateUVM says:

      The “hullaballoo” about derivates was about transparency. The risk that was built into them wasn’t effectively communicated to the people/institutions that purchased them. This created an imbalanced market for them. The total exposure to them was greater than the risk they represented warranted.

      The problem there was two-fold. One…those that packaged the derivatives didn’t disclose the risk. Two…those that made the investments didn’t execute enough due diligence with the funds that they were investing. The point is, it’s not the investment’s fault.

      No matter what the investment is, there is usually a very appropriate amount of investment that is called for. Even the CDSs that were partly blamed for the housing/financial sector collapses are reasonable investments to have… Just not to the level that they were held, as it turns out.

      Back to these CDs… If there is enough information on how they work, which is what there seems to be, and if people bother to educate themselves on these details, which is up to each individual, those are the things that need to be satisfied. Let’s not worry about the investment. Let’s worry about the investment’s suitablility.

  2. eric says:

    I’ve never heard of these…I wonder if other banks offer them too.

  3. aua868s says:

    sounds like a better option than buying gold and worrying about holding it safe…not to mention the difficulty in selling it!

  4. cdiver says:

    Does anyone really think that gold will continue to climb?

    • cdiver says:

      I’m not sure high school or college kids can afford their class rings anymore. This must be killing Herf-Jones.

  5. cubiclegeoff says:

    This could be an interesting alternative to holding metals in general (since there are weird tax issues with holding precious metals). It would be too bad that you couldn’t get more than 50% increase, but not decreasing in value may be worth it.

    Everyone talks about diversifying and that includes having commodities like this, and this seems like a possible good solution (especially if you use the “Permanent Portfolio”). Too bad the dates of when you need to buy and when you can redeem are so fixed.

  6. stephen says:

    Buying and selling gold is easy. Most cities have a coin shop doing bullion coin business.

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