Money magazine reports a new variation of CD - Inflation-Protected CD, now offered by LaSalle Bank in Chicago.
As explained in the Bank's web site, "[t]hese innovative CDs are similar to U.S. Treasury Inflation-Protected Securities (TIPS), where the principal amount is adjusted periodically to reflect changes in inflation. CDIPs pay a stated fixed rate of interest like a traditional CD, however interest is paid semi-annually on an inflation adjusted base amount, not the original investment amount. At maturity, additional interest is paid equal to the total increase (if any) of the inflation-adjusted base over the original investment. Thus, both the final payment at maturity and the periodic interest payments increase as inflation rises."
As of today, LaSalle Bank offers the following rates:
5-Year (Maturity: 12/17/2008): Fixed Rate 1.40% + Inflation
10-Year (Maturity: 12/17/2013): Fixed Rate 2.15% + Inflation
Here are some important facts in the Disclosure Statement:
- CD is FDIC insured up to $100,000 per depositor
- Early Withdrawal: only be available upon the death or adjudication of
incompetence of the owner of the CD and, in those circumstances, will be
permitted without penalty. (Although a secondary market for the CD may be maintained by the broker-dealer selling the CD.)
- CD is transferable upon notice to the broker-dealer
In comparison comparison, Treasury Inflation Protected Securities (TIPS) is only offered in 10-year periods now. The last one yields a fixed rate of 1.875% plus inflation and matures on July 15, 2013.