“Too good to be true” CDs could be bait and switch ploy

Recent newspaper advertisements have promoted yields for certificate of deposits that are significantly higher than comparable CDs available at any bank or credit union. Are these CDs too good to be true?

In the worst case scenario, the person who placed the advertisement may be a scam artist looking to separate you from your hard-earned money. The potential for greater returns comes with increased risk so you should be particularly skeptical of any financial opportunity offering a potentially high return with no possibility of loss.

Even in the best case scenario, however, a federally insured CD with the promised yield may not be available from the company that placed the advertisement. While a salesperson for the company may help you find a federally insured CD, the yield for the CD could be lower than the advertised rate. In order to reach the advertised yield, the company may offer you a promotional incentive, sometimes called a certificate of deposit bonus or a bonus check, if you purchase the CD. Companies placing the advertisements pay these promotional incentives to introduce new customers to products that they sell.

A relatively low deposit limit may apply to a CD with the advertised yield. If you have other available funds, this deposit limit may “open the door” for a salesperson to discuss an alternative product with you. In addition, you may be required to attend an in-person meeting to purchase a CD with the advertised yield, which may make it difficult to avoid the “hard sell” of another product even if you’re not interested.

If you respond to one of these “too good to be true” advertisements, you should assume you may receive a sales pitch for a product other than a CD. Please note that while a salesperson will likely receive a high commission for selling an alternative product to you, he or she may not receive any compensation if you buy a CD.

For additional information on certificates of deposit, please review the following materials: