For the most part, CDs are considered extremely conservative investments; this is due to the fact that they offer very low interest rates. Although they typically yield far less than stocks and bonds, they are a favorite option for investors who don’t want to take too much of a risk.

Possibility of better yields

If CD rates are just too low for you, but you really aren’t up to gambling on high risk investments, you may want to look into market-index CDs. The mechanics are similar, you put the money in for a fixed term and you wait for it to mature, when it does you will have earned a bit. The key difference is that the earnings of market-index CDs are tied to a major market, if the market performs well, so will your CD.

Examples of Market Index CDs

Some of the more common market-index CDs available are based on the Standard and Poor’s 500. There are really quite a few to choose from though, linked to other markets. Golden Stream Securities for instance, offer CDs based on the CBOE Internet Index.

Because of the risky nature of the stock market, most market-index CDs can be called by the bank. They do this in the event that the index drops too low for them to deliver the promised interest. The “call” privilege does not extend to you, but when a CD is called, you will get back your principle and whatever interest you have accrued.

Protecting your Investment

Market-index CDs are FDIC insured up to $100,000. This reduces your risk even further. The catch with market-index CDs is that they could conceivably earn nothing if the market they are tied to does not perform. What’s worse is that still doesn’t mean you can pre-terminate. Whether or not you think the extra yields are worth the risk is your call.