Some firms are endorsing high CD yields even though they can be extremely costly and risky. Why? While some of these promotional rates may be legitimate, others may just be marketing ploys purely for the purpose of obtaining higher commissions. FINRA believes that some firms and companies may be promoting CDs, but selling a product that is much different – even products that are not FDIC-insured.
FINRA explains that many CD promotions require the potential investor to show up to the office and speak with a salesperson face-to-face. During these meetings, FINRA says that the salesperson can then attempt to solicit the investor for a non-CD product. Investors who end up purchasing this type of investment generally put down a sizeable amount – FINRA says about $25,000.
What happens if you say no?
FINRA explains that investors who reject the product that the salesperson is pitching are typically referred to another bank that will offer a regular rate for the CD. In some scenarios, the salesperson still pays the bonus, but the bonus in this case is the difference between the other bank’s CD rate and the company’s promotional CD rate.
What happens if you say yes?
Investors who agree to the CD alternative that the salesperson pitched usually get a discount on the product. This could be to distract from the hefty commission that the company could still take from the other, non-CD product, says FINRA.
According to FINRA, the “yield” in high-yield CDs may be referring to a bonus that the salesperson pays the investor on top of the CDs average percent yield. FINRA says that this bonus is simply a way that companies are incentivizing investors to put money into these high-commission investments.
To learn more, read FINRA’s investor alert.