New York Times writer, Leonard Sloane, explains, "only a few financial institutions have created such certificates, [though] many others are testing or considering similar products.
"[4] Market-linked CDs are also a type of "structured" investment, which means they are created in order to meet an investor's specific financial goals.
They combine the long-term growth potential of equity or other markets with the security of a traditional certificate of deposit.
Prior to the full repeal of the Glass–Steagall Act in 1999, traditional banks were prohibited from offering investment mutual funds to customers.
Eager to increase their competitiveness with non-banks, traditional banks began experimenting with FDIC-insured products that would combine the safety of principal preservation with the growth of market-based returns.
[7] The participation rate is the percentage at which a market-linked CD's annual return will correspond to the performance of the index it is tied to.
In addition, market-linked CDs owners have to pay taxes on "phantom income" on an annual basis, regardless of whether the CD has matured or not.
[11] When an investor purchases an array of stocks, bonds and mutual funds, there is nothing preventing a loss of every penny should markets plummet.
[11] There are a few exceptions, but almost all market-linked CDs are protected by the Federal Deposit Insurance Corporation according to current guidelines.