Company-Issued CDs: Worth the Risk?

June 26, 2012 · 4 comments

There’s a new type of CD (certificate of deposit) that’s growing increasingly popular.  It’s a company-issued CD with the premise being that the yield is higher than what you’d normally get from a savings or money-market account, but an important designation is that they aren’t FDIC-insured as most bank-issued CDs are.  Rather than relying on FDIC insurance, the investor is banking on the solvency of the issuer.

Which Companies Issue CDs?

Fortunately, many large blue-chips are in the business of issuing CDs, like General Electric, Ford, Caterpillar, Duke Energy and more.  The more formal term for these instruments is “floating rate demand notes” but they act like a CD generally.  While the average interest rate in money markets was below .1% and the average savings account yield was .13%, these notes return up to 1.6% returns annually.

GE’s CD Example

For an example of what’s offered, how to go about signing up and what the terms are, let’s take a look at General Electric’s program.  These programs aren’t that easy to find on the main corporate websites, so here’s the link to GE’s GetInterestPlus corporate demand notes.  Presently, here are some key terms to consider:

  • 1.11% yield on balances over $50,000
  • 1.06% yield on balances from $15,000-$49,999
  • 1.0% on balances less than $15000
  • You can redeem by check, wire or electronic transfer
  • Registration is quick and easy and online accounts can be established.

Other companies have similar offerings with varying yields.  Personally, I’m not sure the “slight” increase in yield over conventional banking and CD options are worth the time and effort in setting up new accounts and taking on the solvency risk of the companies.  In theory, in the event of a corporate bankruptcy, chances are, investors would lose a sizable portion, or perhaps all, of their initial investment, whereas banks have the $250,000 FDIC protection on each individual account.  If the spreads were appreciably larger, like paying yields of 4-6%, I’d certainly look at these a bit closer.  Perhaps you’d want to check out corporate bonds which offer much higher yields.


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