Red Flags for High-Yield CDs

June 4, 2014
Laura Joszt

With interest rates still low, some people chasing higher yields could find themselves prey for fraudster looking to take advantage of investors.

With current interest rates staying low, some investors are looking for new opportunities for interest rates that are higher than the average. However, beware of scammers looking to take advantage of the situation.

FINRA recently issued an alert warning investors to be wary of promotions touring high-yield certificates of deposit (CDs).

“Savers continue to face near-historic low yields on traditional bank products,” said Gerri Walsh, FINRA's senior vice president for Investor Education. “Fraudsters attempt to take advantage of investor desire for higher yields by luring them into potentially fraudulent CDs that promise both safety and double-digit returns.”

FINRA is warning against unsolicited emails and calls offering outsized interest from institutions like banks and brokerage firms. One pitch for a CD with a 15% yield appears to come from a large US bank promoting a CD offered by an international banking partner. In another suspected scam, a caller poses as a bank representative and offers information about CDs with rates far above the market.

In the first scam, the email includes instructions on how to wire funds for the CD. In the second scam, the caller appears to be attempting to gather personal financial information. FINRA reminds investors that they should never provide personal information or authorize fund transfers to people that have not been checked out. People who were approached and believe the offer fraudulent should contact customer service at the financial institution in question.

“In low-interest rate environments, investors may be tempted to chase higher yields,” FINRA posted on its website. “But always remember that these higher returns come with a cost. While financial institutions occasionally offer slightly higher than normal rates on CDs, such offers tend to be for (and may be limited to) customers who open a new account.”

These red flags indicate a CD offer may be a scam:

• Interest rates that are significantly higher than average.

• Emails with addresses that are not originated and sent by the financial institution that is cited in the promotion.

• Emails that contain misspellings or grammatical errors.

• Promotions that claim to be from a US financial institution that has aligned with an international bank.

• Promotions that claim to be for a "limited time only."

• Promotions that claim to be directed at "best customers" and that require extremely high minimum investments (for example, $100,000).