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Bates Research  |  06-13-14

FINRA Warns on HY CDs

FINRA issued a new investor alert recently warning against potential scams involving high-yield CDs.  In connection with the new alert, Gerri Walsh, FINRA's Senior Vice President for Investor Education, indicated that the reason for FINRA's concern was driven primarily by the rise of fraudsters attempting to take advantage of investors facing "near historic low-yields on traditional bank products."  We've blogged previously about the ongoing search for yield and the rise of investment fraud in the current market environment.

Many of the scams involving high-yield CDs carry the hallmarks of traditional phishing or email scams, such as misspellings, claims of international origin, or email addresses and other credentials that do not match those of the bank the investment is supposed to be from.  More specific to high-yield CDs, FINRA warns investors to be wary of rates that are far above average rates (15% at a time when the average is 1%), high minimum investment amounts, and the ever-present "limited-time offer" aspect of these kinds of schemes.  Investors are also reminded not to give out personal information over the phone or email without investigating the counterparty first.

FINRA also takes the time to note that some higher-level returns are possible through structured or market-linked CDs, but that these products may not be covered by FDIC insurance.  Investors need to do their own research to understand the risks of these products and to determine if the CD they are being offered falls into this category, rather than being a scam. 

Investors looking for yield-bearing products have limited options in the current market environment, and that high demand is creating an opportunity for fraudsters to act.  FINRA and other regulatory agencies are increasingly spending their time helping investors to avoid investment fraud scams.