Pros and Cons of a Market-Linked CD
Some large investment companies are selling a savings and investment product called the market-linked CD, which is a certificate of deposit that pays a guaranteed return with the possibility of a higher return based on the performance of the stock market as measured by an index like the S&P 500. |
|
Five Points to Consider
|
So is the market-linked CD right for you?
If you plan to park money in a conventional CD anyway, the market-linked CD may be appropriate given the CD is in a tax sheltered account (to avoid the unfavorable tax liabilities) and you are sure that you will not need the the money before the CD matures (to avoid early withdrawal penalties).
The worst-case scenario is that the market goes down and you get no benefit from market returns. The best-case scenario is that the market goes up and you get the guaranteed return plus a kicker from the market. Of course, if you are a savvy stock investor, you may be better off buying and holding stocks in a well diversified dividend-paying portfolio. |