Bait & Switch

By Bryan Rafie, Spring 2016 Student Intern

We have all experienced it. You see an ad in the paper or online. It is just what you have been looking for, and the price is unbelievable. No, seriously, as in you can’t believe it. On the rare occasion that you actually convince yourself to look into it, you always discover it was just a gimmick or there is a catch. Another good example is a time-share. You get an invitation for a free 3 night stay at a great hotel. All you have to do is sit through a short talk about time-shares. We all have heard the story before. Most of us decide not to bother.

CDs, or certificate of deposits, are bank accounts that pay a fixed interest over a period of time as long as the money in the account is not withdrawn. These accounts are very important to older investors, because they are FDIC insured and the principal balance of the account is guaranteed. This means that you can earn interest on your deposits and not have to take any risk in the market.

In today’s market however, rates on CDs are at an all time low. This means that older investors are often looking for safe places to both earn return in more obscure places. Enter the High-Yield CD Offer. Much like the time share, certain firms are marketing high-yield cd rate promotions. The interested investors are required to go into the office to claim their rates, and they are forced to sit down with an adviser. That adviser will then pitch a much different product, normally entailing more risk. The pitch will be high pressure in an effort to get the investor to agree to forgo the special rate on the CD and buy the security.

The really ugly side of this issue is that in many cases it is not even the bank making the CD rate available. The special interest rate is actually a “bonus” that the firm pushing the security will pay the investor for just listening to the pitch.

It’s very important that investors receiving these kinds of offers ask questions and turn to third parties for help. A good option is the investor’s state insurance commission or FINRA’s Securities Helpline for Seniors (844) 57-HELPS). Some investors might be willing to take the risk to get away with the bait, but remember, don’t be a fish, know what you’re getting into.