There's Gold in Them Thar CDs

Barbara Marquand | guest writer for GoTalkMoney

With the declining value of the dollar and rising gold and silver prices, it's no wonder a growing number of investors are thinking about investing in precious metals.

But how do you start?

Heavy Metal Investments

One easy way is through CDs. Everbank, headquartered in Jacksonville, Fla., is marketing a new diversified metals certificate of deposit, which lets buyers invest in platinum, gold and silver without risking principal. You must deposit at least $1,500 and wait to cash out for five years. The certificate of deposit has no fees and is FDIC insured, so your money is safe as long as you stay within the insurance limits--now at $250,000 per person per financial institution. The funding deadline for the CD was extended to June 24 with an issue date of July 7.

If precious metals prices go gangbusters, your earnings can equal up to 50 percent of your deposited principal. If prices tank, you still get your full, original deposit back at the end of the term.

These types of CDs aren't new. Indexed CDs have been around since the late 1980s, but they've attracted greater attention lately because investors are looking for new ways to make money in light of a turbulent stock market and miniscule returns on traditional savings vehicles, such as savings and money market accounts.

Everbank issued a gold-linked CD five years ago, and JP Morgan launched a certificate of deposit linked to the price of gold last year.

But don't let gold fever--or fever for any kind of earnings--cloud your judgment. Indexed CDs are more complex than traditional CDs, and with the greater promise of returns comes greater risk. Although your original deposit amount is guaranteed if you hold onto the CD through maturity, you might not earn anything if metal prices decline. With a traditional CD, you get a guaranteed rate of return no matter what happens in the economy. Weigh those risks carefully before investing.

Look Elsewhere for Liquid Investments

Indexed CDs are not liquid investments, so they never should be used for emergency savings. With a conventional CD, you forfeit some interest earnings if you cash out before the CD matures, but you get your full original deposit back. But with indexed CDs, the penalty is much harsher. Everbank's new diversified metals CD terms say you cannot withdrawn any part of the CD before maturity. If you do withdraw early, you forfeit principal and returns you might have earned.

You can find CDs linked to other indexes as well, such as the S&P 500 or U.S.Ttreasury bills. Generally indexed CDs are riskier, have longer terms and harsher early withdrawal penalties, and are harder to compare side by side than traditional CDs because it's tough to gauge how indexes will perform.

Whether you're thinking about an indexed CD linked with precious metal prices or the Dow Jones Industrial Average, read the fine print of the terms and make sure you understand the investment. Consider the following:

Indexed CD Considerations

• Term length

• Minimum deposit

• Caps on earnings

• Measurement method of the index

• FDIC insurance

• Fees

Indexed CDs might indeed be worth a look--but a decision to invest deserves more than a passing glance over the promise of returns. Make sure that all that glitters really is gold.

Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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