Seniors and Brokered Certificates of Deposit

©2003 by Werner Cohn


When an older person purchases a brokered certificate of deposit, the chances are -- depending on his age -- that he will never live to collect the full principal. If he sells his investment before it has matured, he will suffer a loss regardless of interest rate fluctuations. If he waits for the certificate to mature, the chances are that he will die before.

"Brokered" certificates of deposit, though insured by the FDIC, lose money for their owners the minute they are bought. This loss is separate from any gain or loss due to interest fluctuations. It is a loss that is kept hidden from the investor until it is too late. Please see my write-ups:


Brokered CDs: Caveat Emptor

The Behavior of FDIC-Insured CDs in the Secondary Market


As an example of what can easily happen to an older investor, I have learned from current U.S. Life Tables that I have no more than a 40% chance of collecting on the "FDIC-insured" principal of the CDs that I was sold at age 76.

Life tables show probabilities that are very precise for large populations, but they obviously cannot predict when an individual person will die with any degree of certainty. As to that -- the hour of an individual's death -- we know no more than did Isaac in Genesis 27:2: "I do not know how soon I may die." Nevertheless, death is obviously more probable at certain stages of life than at others. Absent particularly relevant information about an individual, such as life-threatening disease, life tables are very useful, even for individuals, for many decisions that require reasonable estimates of life span.

In the table below, I give the probabilities, for older investors, of living long enough to see a ten-year CD mature. Since different age and sex groups have substantially differing life expectancies, there are separate calculations for these.


Probability of Living When a Ten-Year CD Expires

 Age at Purchase

 Black Males

 Black Females

 White Males

 White Females

 45 Years


















































These values are calculated from data in National Vital Statistics Reports, vol. 51, No 3, December 19, 2002. Please see U.S. Life Tables



1) After age sixty, the chances of living when a ten-year CD expires grow rapidly smaller. After about age 75, these chances are less than even. By age 85, they are minuscule.

2) Since these instruments are sold with defects that are hidden, defects that can only be cured to some extent by holding them to maturity, it is especially cruel to market these certificates to older Americans.



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November 25, 2003


Update, June 2004:

There apparently is a provision in brokered CDs that in case of death or "adjudicated incompetence," these instruments can be redeemed at par even before maturity. A registered broker would have to apply for such redemption through the Depository Trust Company. The procedure is complex. Moreover, for reasons best known to himself, my broker never informed me of this provision.


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