market-indexed CD

market-indexed CD definition - business

market-indexed CD

A certificate of deposit that provides a return based on a specified index, such as the S&P 500, or a commodity, such as gold or silver. These CDs are issued by commercial banks but are generally marketed by brokerage companies. Terms vary by issuer, but investors are generally guaranteed the return of their principal at maturity.
Case Study Some banks and thrift institutions offer certificates of deposit with returns linked to a variety of market indexes. For example, a bank might offer a CD with principal guaranteed (savers get back at least the amount they deposited) and a return based on a gain in the S&P 500 Stock Index. In early 2007, EverBank Financial Corporation, a thrift holding company headquartered in Jacksonville, Florida, was offering what it called a “MarketSafe Gold Bullion CD" with a yield linked to the upside price performance of the spot price of gold bullion. The CD was available in a 5-year term with principal guaranteed by FDIC insurance. The CD offered a yield based on 100% of the average price performance of gold bullion, applying ten semiannual pricing dates over the term of the CD. The required minimum investment was $1,500, and the thrift levied no account fees. At the same time, EverBank was offering a 3 1/2 -year CD linked to the price performance of the Tokyo Stock Exchange REIT Index.

The American Heritage® Dictionary of Business Terms Copyright © 2009 by Houghton Mifflin Harcourt Publishing Company. Published by Houghton Mifflin Harcourt Publishing Company. All rights reserved.

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