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July 19, 2011

10% FDIC Insured Certificates of Deposit. Is it Possible?

It might be possible to earn anywhere between 7.15% and 10.15%. How? The answer is market linked CD’s. What is a market linked CD? They are FDIC insured certificate of deposits that the payments are linked to the performance of a few publicly traded blue chips stocks. They are issued by some of the largest banks in the world.

Ask yourself these four questions. 1) Do you invest in CD’s. If yes, than 2) What do you like about CD’s in general? You probably answered the FDIC guarantee. And 3) What do you dislike about a CD? You probably answered the low interest rates currently offered. Well the fourth question is easy. 4)Would you be interested in a CD that was FDIC insured and had the potential of a interest rate that was significantly higher than what was currently offered? You probably answered yes and wanted to know what they were called. They are called Market linked Certificate of Deposits and have been around for over 25 years. But until recently, they were only available to investors with 10 million dollars or more to invest. They are insured by the FDIC covered generally up to the $250,000 limit. If held to maturity, your principle is guaranteed. Some of the largest banks in the world strategically choose a basket of stocks or indexes and tie the yearly interest payment to their performance. For example, if the chosen index is the S&P 500 and the growth for the year is 10%, you will be credited 10%. If the market loses, your CD interest payment for that year would receive zero. Currently, the crediting range is 7.15% to 10.15%. When the current offering is closed, usually near each end of the month, they specify the actual cap rate or for this last example, 10%. Risks involved? Well zero if you hold them to maturity. If the stocks or indexes drop in value, your principle is FDIC insured. If some but not all perform, then you might get less than the auto cap but more than zero. And if they all perform, you would receive the auto cap rate As discussed, the latest offering has minimum cap of 7.15%.

Let us discuss how the interest rate is actually credited. For this example, let us illustrate an auto cap of 10% and the basket of stocks offered are 10 blue chip stocks that we all can evaluate prior to the closing of the offering. Also, let us further assume that each stock starts off with a beginning stock price of $100. If the stocks at the annual anniversary is 100 or better, you are credited 10% per stock. 10x10% is equal to 100%. Divide 100% by the 10 stocks and you get 10%. That would be your interest payment for the year. 10%. Example 2 of 3. If all of the stocks went down to say $95 dollars. All 10 stocks would not get any credit therefore your annual interest payment would be zero but your principle would not go down either. And now for the last example, this is an example where a few stocks go up and a few went go down. If 7 stocks were at $100 or better, and 3 stocks lost 10% each, then 7x10% would equal 70% and the 3 stocks would equal a negative 30%, then combined it would add up to 40% (70-30). 40% divided by 10 stocks is 4% and your annual interest rate payment would be 4%. For more information, please contact me at mark@universalfg.com or visit our website at www.universalfg.com     

My name is Mark S. Pincus and with over 25 years of experience in the financial services industry, I have been involved in almost every aspect in the business. From individuals saving for their children’s college to creating and structuring various complex business financing options, I have the experience to help you accomplish all of your financial goals. .        

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