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Older Savers Deceived by High Yield 'One Year CDs'

Wed, 08/23/2000 - 12:00am — Karen Stevenson
Description: 

The Securities and Exchange Commission (SEC) is warning consumers about increasing problems with deceptive sales practices related to high-yield "one year" certificates of deposit (CDs). The deception occurs because the CDs are "one year noncallable" CDs, terminology which leads the purchasers to believe that they can be redeemed in one year, when they are actually 20-30 year CDs with significant penalties for early redemption. Particularly at risk are trusting older consumers looking for the security of a CD for their retirement savings.

These CDs are being sold by brokers, not banks, and are touted as a safe place for an 80 year old investor to place his or her funds for a guaranteed return, even though an 80 year old is unlikely to live long enough to ba able to redeem the CD without penalty. True one-year CDs can be purchased through legitimate brokerages, but some less respectible brokers are using deceptive techniques to sell long term CDs to consumers who do not understand what they are purchasing. The SEC has posted a brochure for consumers to help warn them away from inappropriate purchases. Jane Bryant Quinn, the respected financial columnist, has also issued warnings to her readers. She reports that the SEC has received dozens of complaints, and that it appears that the problems will only become widely known as duped consumers attempt to redeem their 30-year CDs over time.

The Securities and Exchange Commission (SEC) is warning consumers about increasing problems with deceptive sales practices related to high-yield "one year" certificates of deposit (CDs). The deception occurs because the CDs are "one year noncallable" CDs, terminology which leads the purchasers to believe that they can be redeemed in one year, when they are actually 20-30 year CDs with significant penalties for early redemption. Particularly at risk are trusting older consumers looking for the security of a CD for their retirement savings.

These CDs are being sold by brokers, not banks, and are touted as a safe place for an 80 year old investor to place his or her funds for a guaranteed return, even though an 80 year old is unlikely to live long enough to ba able to redeem the CD without penalty. True one-year CDs can be purchased through legitimate brokerages, but some less respectible brokers are using deceptive techniques to sell long term CDs to consumers who do not understand what they are purchasing. The SEC has posted a brochure for consumers to help warn them away from inappropriate purchases. Jane Bryant Quinn, the respected financial columnist, has also issued warnings to her readers. She reports that the SEC has received dozens of complaints, and that it appears that the problems will only become widely known as duped consumers attempt to redeem their 30-year CDs over time.