I’ve already written about Millennium Bank – the offshore bank offering 8% certificates of deposit that are not FDIC-Insured, let alone highly regulated. More recently, a group called the Federally Insured Savings Network (FISN) has been advertising FDIC-insured Certificates of Deposit Paying Over 8%”. What’s the deal?
It definitely looks too good to be true, but let’s look at the fine print and see what we can find. I’ll just focus on the highlighted CDs paying a 8% and 8.25% APR to save some time.
These Are Long-Term Investments With Very Limited Liquidity
The maximum terms for these CDs are for 15 or 20 years! If you wish to withdraw early, you can be sure it will be with a fat penalty. However, it may not even be possible to re-sell them at all. From the disclosure: “Lack of Liquidity. The CDs will not be listed on an organized securities exchange. JPMSI may offer to purchase the CDs upon terms and conditions acceptable to it, but is not required to do so.” This could be worse than even taking money out of your IRA or 401(k).
High Minimum Investments
In this case, you need $25,000 to invest with FISN as your broker to JPMorgan Chase Bank.
They Are Callable, And That’s Not Good
A callable CD means that the bank can say “I found a better deal elsewhere, so I no longer want to pay you this much interest anymore. Bye!” You’ll get your principal plus interest earned up to that point, but this usually happens when interest rates fall, leaving you stuck with alternative paying a lot less than you were getting before.
On the other hand, you the depositor have no such flexibility. You’re still stuck for as long as the bank wishes. Again – up to 20 years! Put another way: Heads, the bank wins; Tails, you lose.
Not A Fixed Rate CD – 8% Rate Isn’t Guaranteed
When talking about a bank CD, you’re usually referring to a fixed rate CD. However with this investment, you may or may not get paid any interest based on the following criteria:
Interest is paid quarterly for every day the 30Yr Constant Maturity Swap (CMS) Rate is greater than the 10Yr Constant Maturity Swap Rate (Positive Yield Curve). If the 10Yr CMS Rate is greater than the 30Yr CMS Rate on any day (Negative Yield Curve) no interest is accrued for that day. Full 8.00% rate guaranteed for first year.
Trying to figure out exactly what CMS rates were made my head hurt. But very generally, if the long-term interest rates are higher than short-term interest rates (positive yield curve) you’ll get paid your fraction of 8% annual interest that day. However, if the curve goes negative, which it has for extended periods in the last few years, you don’t get paid any interest that day. So 8% is basically a best-case scenario. Over a 15-year period, I highly doubt you’ll be getting the full 8% each year. Earning 0% is the worst-case scenario.
I’m Not Interested
So yes, technically these are FDIC-insured to the extent that your principal is safe. But your money could be stuck sitting around earning nothing while inflation eats away at the actual value. And the bank will only keep paying the interest if it remains profitable for them. These seem to be sophisticated investments being marketed at the unsophisticated public. Buyer beware!
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This is not really a CD, what the investor is really doing is speculating on the future direction of interest rates and that’s okay if you want to do that but there are better ways to do it. I noticed that this company also has CD’s that pay 8% for a term of as little as 1 year so you don’t necessarily have to lock your money up for long periods of time. This idea might work over a short period of time, i. e. one year. There’s less risk that way.
“Justtoeguy”, you said “This idea might work over a short period of time, i. e. one year.” – Ok, and after 1 year you’ll spend all your 8% (and probably more) just to pay for steep fees foe EARLY withdrawal. Sweet deal, indeed!!!!!!!!
If you look at their web site it says that you can get a 1 year CD with the 8 1/2 rate so there isn’t any early withdrawal penalty after the one year is up. But there seems to be other potential problems with the deal, somewhere in the contract it seems to suggest that the Bank can decide on it’s own if the yield curve is inverted or not. So you’d be trusting the Bank to calculate things properly. What you see in the paper wouldn’t necessarily apply.
Do not confuse the “non-callable CD term” with the actual term of the CD. You, the buyer, cannot withdraw from the CD after 1 year. You cannot withdraw on your own for 20 years!
Only they, the bank, can end the CD after 1 year if they want. Again, this product should only be bought by those who understand all of the terms given.
They have a 1 year CD based on the S&P but no interest rate is given. Regarding some of the other CD’s it just says that 20 years is possible and that the bank can’t call it for one year. But it doesn’t say you can’t get a term of 1 year. You might be able to get a term of 1 year if you negotiate with the bank.
So far
Thanks for taking my mail. I recently discovered this issue-JPMORGAN CHASE BK 10.50% 5/23/2023CD. Cuspid is 48121CM29 and when I typed it in it did appear. I know it sounds too good to be true and I wondered if you had any iinformation on this. Thanks Ron
I agree this is money that you should not need for the term of the CD that you are buying. It is otherwise is a good deal. The 2 to 10 year teasury swap is a risk. Rarely happen that a 10 year teasury is less than the 2 year teasury. I am invested with them 2 years now and
doing well.
Peter
Thanks! Just what I was looking for to see the catches for “too good a deal.”
Peter – is it 20 years? 8% for 20 years is a risk too if inflation sets in, no?
The alarm goes on first with the name Federally Insured Savings Network (FISN), but the real deal come from a set up wizard that indicates that FISN is really First Internet Securities Network (FISN), same initials different meaning.
Suspicious!!!
I recently purchased a 5% CD for my 95 year old father from this company when rates elsewher were hovering around 2-3%. He uses the income generated from the CD to help pay his living expenses. Yes, it is for 20 years and it is callable but it is call-protected for 2 years. While I would like my dad to live as long as possible I think it is unlikely that he will outlive the CD maturity date. There is a survivor option on this CD which allows the beneficiaries to cash in the CD without penalty which made this a good choice for our situation.
I have been investing with FISN for almost a year and have done very, very well. The callable CD’s are offereing two to three times what any bank is offereing and if they hang on to them GOOD!!! If not you still get 6 Month to X number of years protected. I got teo at 11 and 12 percent, find any bank that will pay that. This nonsense about inflation is just that, nonsense. Inflation is as low as it has ever been. No one, not my personal broker to any bank can touch FISN, BTW check up on Millennium bank and see how these investments worked out!
I have made a ton of money with Cary Chirpouras of FISN. He is great to work with, honest and very prompt to get back to clients. FISN is very careful to find the safest, FDIC-insured banks with the highest interest rates. In five years or more with FISN, I never found investments anywhere else which could touch the value of what FISN offered.
I fully agree with what Robin says. I’ve worked with Cary as well and the securities I’ve purchased through FISN have been rock solid and paid well. Cary and the rest of the brokers at FISN aren’t low pressure salespersons–they’re NO PRESSURE salespersons. What they have available is on the website. If you want it, good. If not, it’s your choice. I researched the CMS swap CDs thoroughly before investing and found them to be a very good deal. I made 12% off a JP Morgan CD for a year before JPM called it. I didn’t think JPM would keep paying 12% any longer than they had to, but 12% for that year was a heck of a lot better than what any other investment I had access to was doing, and it was FDIC insured to boot.
If you invest with FISN, my experience says you’ll be very happy with the outcome.
Gentlemen:
I have been a licensed broker for 15years. I have never lost anyone one red cent over a callable cd.
These cds beed to be thoroughly explained before they’re sold but they can be very rewarding.
The ones with the highest yields usually get called the fastest(i.e 7-9%). There are many different versions out there(market linked, CMS spreads etc..). My clients have made a fortune on callable cds in the last 10 years.
just my 2 cents..
This was a very informative and useful post. THANK YOU!!!!!!!!!!
I’ve been a client of FISN for ten years now. I disagree with what you’re saying about FISN. I am not related or affiliated with them in any way — only a client. About two years ago, I decided to liquidate everything, including long-term CDs. They were able to sell everything in my portfolio within two days with no penalty whatsoever. FISN is completely trustworthy and has the best products, bar none.
Yes,…..John Ping needs to learn much more before he shoots his mouth off. I also dealt with Cary C although he has moved on to RBC Wealth Management 2 or 3 years ago. I still speak to him and deal with him.
Every single one of my investments worked out great. Difference being I actually understand what a callable CD is, as well as ‘swap’ based CD’s. Heck,…..I can even run the formulas for current yield in my head. i must be a genius. Lol
These are not for people that are unable to understand anything other than a one year bank CD. Please stay out of the stock market as well, you will lose your rear.
The problem is that most people buying these CDs don’t understand what the difference between a callable, swap-based, or traditional CD is. They just see the high yield. Sorry, still can’t recommend these products where the bank can either keep you in a low rate in a high-interest rate environment, or stop paying a high rate in a low-interest rate environment. The window where the consumer wins out is too small and hard to predict.
My point in responding this many years from the start of this thread was due more to your seeming to warn that FISN was some kind of ‘scam’ company because they sold callable CD’s, and swap based CD’s.
I agree that a lot of people do not have the acumen to grasp how these function. I don’t know how they can be that confusing, but I guess they are to some.
Furthermore I am not saying that NOW is a good time for anyone to buy a callable CD. The only way that would make sense would be if you ‘HAD TO HAVE’ a 3.5% return right now that was guaranteed by the FDIC. That or a 30 year treasury are about your only options in that range. Either way you are screwed when rates begin to rise.
Anyone buying a callable CD at this point in time will own it for the full duration, or they will lose 20 to 40% of their principal selling it on the open market after rates increase.
My last CD was a ‘swap based’ type that I made 8.25% from for two years straight. That was the cap, as the formula was yielding almost 9% a number of quarters. It was a no brainer at the time I bought it. It was a Wells Fargo issue BTW. I am 100% out of any kind of CD at this time, and will be until 5% can be achieved again.
No offense intended, but be a bit more careful in maligning decent financial companies when attacking products that you don’t like or understand. You DO realize that the large commercial banks all sell callable CD’s as well,…….right?
Have a nice day, and go buy shares of a BDC or two for some nice yield! ARCC, MAIN, and FSIC come to mind. Lol