Harry Gross: Callable CDs? No big deal
Dear Harry: My neighbor told me that her bank was offering "callable" CDs with terrific rates. I went to my bank and told the branch manager about them, and she said they were offering them, too. I wanted to go for one, but my husband suggested that I write to you first. Here's the deal. It's a five-year CD with an interest rate of 3.1 percent. However, the bank has the right to call it every six months. Even if they call it after six months, I'll be way ahead of the market. There has to be something I'm missing, because the rate is way above the market rate for six-month CDs. What's the hitch, Harry?
What Harry says: I'm a bit surprised at the rate, but I'm not overly impressed. Rate changes will always be in the bank's favor. If they fall, the bank will call the CD, and you'll have to cash in at a time when you can't get a decent rate. If interest rates should rise, the bank will be paying you at a rate lower than the going market rate, and you won't be able to get out except by paying a stiff penalty. It's a case of heads, they win; tails, you lose. You're locked in, the bank is not. Every time something new or unusual hits the market, you have to be very careful to check all the angles before you go in. I'd rather see you go for a series of CDs that are "laddered" at various maturity dates. Here, you have greater control of your money for the same time frame.
Write Harry Gross c/o the Daily News, 400 N. Broad St., Philadelphia, PA 19130. Harry urges all his readers to give blood - contact the American Red Cross at 800-GIVE LIFE.
