High-Yield CDs: Red Flags That Signal a Scam

If you get an offer for a certificate of deposit that offers much higher interest rates than current averages, be suspicious.

Jul 6, 2014 at 11:30AM

Beware of promotions about certificates of deposit, or CDs, promising interest rates that are substantially higher than current averages. FINRA has observed offers for "low-risk" products with outsized returns. Investors should be wary of unsolicited emails and calls that offer outsized interest from financial institutions, including banks and brokerage firms, particularly those with which you have not had a business relationship.

What might the pitch look like?
In one instance of suspected email fraud, the pitch appeared to come from a large U.S. bank that supposedly was promoting a CD offered by an international banking partner. At a time when most CDs at U.S. banks and credit unions were offering just over 1% for a comparable term, this pitch offered a CD with a 15% yield and contained instructions on how to wire funds.

In another instance of suspected phishing fraud, a caller posed as a representative from a legitimate brokerage firm and claimed to offer information about CDs that were well above the best rates in the market. The offer appeared to be an attempt to gather personal financial information.

Red flags that signal a scam
Red flags that indicate a CD offer may be fraudulent include:

  • Interest rates that are significantly higher than average.
  • Emails with addresses that are not originated and sent by the financial institution that is cited in the promotion.
  • Emails that contain misspellings or grammatical errors.
  • Promotions that claim to be from a U.S. financial institution that has aligned with an international bank.
  • Promotions that claim to be for a "limited time only."
  • Promotions that claim to be directed at "best customers" and that require extremely high minimum investments (for example, 100,000 U.S. dollars).

If you receive an unsolicited email or telephone call
Never provide personal information or authorize any transfer of funds to any unknown person who emails or calls you or to any institution that you have not checked out.

If you aren't sure a communication is legitimate, contact the customer service center or compliance office of the U.S. financial institution that the emailer or caller claims to work for. Use the number on the firm's website or in a publicly available telephone directory. If you are a customer of the financial institution that is being referenced, use the contact information found on your account statements or on the back of the bank's credit or debit card. For email promotions, attach a copy of the promotional email to your correspondence with the firm.

Are higher returns ever possible?
In low-interest rate environments, investors may be tempted to chase higher yields. But always remember that these higher returns come with a cost. While financial institutions occasionally offer slightly higher-than-normal rates on CDs, such offers tend to be for (and may be limited to) customers who open a new account. In other instances, a "market-linked" or "structured" CD can legitimately provide potentially higher yields because its performance depends on the performance of a market index or some other benchmark. But, as the Federal Deposit Insurance Corporation explains, this type of CD is risky and complex -- and differs significantly from traditional CDs.

If you think you've been scammed
If you believe you're a victim of a CD scam, act quickly. Contact your financial institution immediately to report a loss or theft of funds through an electronic funds transfer. If you believe your identity has been stolen, follow the Federal Trade Commission's Identity Theft action plan to protect yourself. FINRA also encourages you to file a complaint using our online Complaint Center or send a tip to FINRA's Office of the Whistleblower.

For more information about saving and investing, visit the investors section of FINRA.org.

FINRA is the largest independent regulator for all securities firms doing business in the United States. Our chief role is to protect investors by maintaining the fairness of the U.S. capital markets. FINRA does not endorse, sponsor, or guarantee, nor is it sponsored by, any advertisers on this site, and any dealings with those advertisers are solely between you and the advertisers.

link

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers