Beware high-yield CDs in low-yield times

Some of my favorite stories are Aesop’s Fables. There’s one about a dog and his master. This loyal canine brings the man his dinner every night. As those of you with dogs know, the pup is tempted every time to eat the dinner. Some other dogs in the neighborhood finally stop and distract him, allowing him time to surrender to this temptation. The point is, instead of staying on course, he entertained this idea for too long and ate the dinner.

I see it happen all of the time with investing. And it’s always the same idea. We see a potential return that’s too good to be true. Many times it’s a high, advertised CD rate that just couldn’t be the whole story.

Here are some thoughts to keep in mind the next time a too-tempting CD offer crops up.

1. DO YOU NEED TO MEET IN PERSON FOR MORE INFORMATION?

Of course, you want to meet in person to do financial business. But to simply get information you should be able to receive something in the mail or over the phone. If you receive a hard-sell for an appointment, watch out.

2. IS THE ADVERTISED RATE TOO GOOD TO BE TRUE?

I’ve recently seen rates as high 4.7 percent when most reputable banks are not even offering 2 percent for a five-year certificate. If you see a promise for more than double the going rate, you can probably lace-up those running shoes and sprint for the proverbial door.

3. IF THE GOVERNMENT HAS WRITTEN A REPORT ON IT, YOU SHOULD TAKE NOTE

Here’s an excerpt from an FDIC report, Shopping for a CD: Be Informed, Be Safe:

“Beware of an advertised CD rate far above the competition. First, it could be a product issued by a company that is not federally insured and any money invested is at risk. Second, it could be a marketing ploy. ‘An offer of a very high interest rate may be a lure to promote the sale of non-insured products,’ said Richard M. Schwartz, an FDIC attorney who specializes in consumer issues. ‘Some non-bank companies are using the FDIC logo and good name to draw customers in the door for a bank CD, but sooner or later, they’re going to try to lock them into a long-term investment that may not be in the customer’s best interest.’”

Be careful when considering any offer. Always get more printed information, and don’t be afraid to walk out on the deal at any moment.