The Financial Industry Regulatory Authority (FINRA) issued a warning about advertisements promoting high-yielding certificates of deposit (CDs). While some of these promotions may be legitimate marketing efforts by banks and credit unions, many others are “bait-and-switch” ploys to sell a different, high-commission product. FINRA says it issued the alert in response to calls on its Securities Helpline for Seniors (1-844-574-3577).

These promotions typically require an individual to visit the company’s office and speak with a salesperson. Once there, the product pitched will often be a high-cost annuity. Unlike the CDs commonly offered by banks, these annuities are not FDIC-insured and are not risk-free.

Always read the fine print and ask questions, because the structure of these promotions is intended to benefit the firm offering the promotion and not you. FINRA says that the advertised yields for high-yield CDs generally include a bonus. The bonus is an excess amount paid by the salesperson to the customer in addition to the CD’s actual average percentage yield (APY). It is an incentive by the company or the salesperson to get potential customers in the door to listen to a pitch for a different product.

The pitched product—often an annuity—will often be sold with some type of incentive pricing. This discount may be close to the interest and bonus paid on the advertised CD. Even with the discount, the commission on the non-CD product is still likely to be high.

FINRA says those who turn down the additional products can still generally purchase the CD. The salesperson will likely direct those only interested in the CD to another bank. The advertising firm will still honor the quoted yield by paying the difference between the CD’s actual yield and the promotional rate to the customer.

The big key to remember is that the promise of higher yields comes with higher risks. The high-yield CDs being pitched are often just marketing ploys. The annuities being pitched in place of the CDs may not only be costly, but also unsuitable and not easy to get out of. Though annuities can have a useful role in a portfolio, they can also be misrepresented and misunderstood. Most importantly, realize that you can always say “no” and walk out the door.

“High-Yield CD Offers Can Be Bait for High-Commission Investments,” FINRA Investor Alerts, February 9, 2016.

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