Certificates of Deposit

Callable Fixed Coupon Federally Insured Certificates of Deposit

As with Callable Step-Up Federally Insured Certificates of Deposit discussed previously, there are also fixed coupon Federally Insured Certificates of Deposit. 

Investors seeking higher yields and high credit quality can look into callable, fixed-coupon FDIC Insured Certificates of Deposits (FIDs). 

Typically this type of investment is appropriate for “buy and hold” fixed income investors, who buy the Certificates of Deposit and plan to hold it to maturity. 

How Callable Fixed Coupon Federally Insured Certificates of Deposit work…

Issued by banks or other lending institutions, these FDIC Insured Certificates of Deposit have a coupon rate that is locked in and paid to investors until the first call date. 

Callable, fixed-coupon FDIC Insured Deposits are attractive to individual investors because they provide FDIC protection while typically offering higher yields than comparable-quality, non-callable fixed income securities, and even some traditional callable bonds. 

What happen to FDIC insured Certificates of Deposit In case of declining interest rates? 

In case of declining CD rates, investors receive this higher yield to compensate for the fact that if interest rates decline, the issuer is more likely to call the Federally Insured Certificates of Deposit before maturity in order to reduce financing costs. 

Should this occur, the Federally Insured certificates of deposits will be redeemed at par, plus any accrued interest to the call date. 

What happen to FDIC insured Certificates of Deposit In case of rising interest rates? 

However, if interest rates rise, the issuer is less likely to call the Federally Insured certificates of deposits , and the investor would continue to receive the stated coupon payments until the Federally Insured certificates of deposits is either called or reaches final maturity.

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