Warning: Watch Out for These CD Rate Advertisements


With the current economic situation being what it is, money expert Clark Howard is getting a lot of questions about where to store your money right now or the best place to stash some cash short-term.

Interest rates on savings accounts have been in the basement for quite a while, so people are looking for alternatives. But Clark says you need to be aware of two widely advertised avenues that are not wise choices.

Looking for a Savings Strategy? Watch Out for These 2 Money Pitfalls

During a recent podcast, Clark talked about the issue, which he calls a “special warning that comes in two flavors.”

1. Risk-Free, High-Reward Promissory Notes

“There are people seeing ads online and in newspapers that are talking about great rates on certificates of deposit, CDs or notes,” Clark says.

While CDs are insured by the Federal Deposit Insurance Corporation (FDIC), promissory notes are typically securities promised by one party to another, and as such they aren’t backed by the FDIC.

“When a company says ‘Yeah, you essentially lend us money and I’m going to pay you this. What stands behind it? Nothing,” Clark says.

“A lot of people who are starving for a return on their money are getting taken by these promissory notes, particularly older Americans who are trying to get their savings to stretch,” Clark says. “They’ve been very vulnerable to these.”

How To Protect Yourself

The U.S. Securities & Exchange Commission (SEC) has some good advice on how to avoid getting scammed by someone selling promissory notes.

“Be cautious if the seller promises ‘ risk-free,’ ‘insured,’ or ‘guaranteed returns.’ These claims are usually the bait con artists use to lure their victims,” says the SEC website. “Always remember that if it sounds too good to be true, it probably is.”

2. High-Interest CDs Tied to Annuities

As you may know, Clark thinks that most annuities stink, and he thinks that this new twist smells to high heaven.

“The second pitch out there that is geared to people, principally 40 and over, is when you’ll see an ad online or in a newspaper that says, ‘six-month CD, one-year CD. 2.5%, 3%, whatever,’ in an era where you’re lucky if you squeeze out half a percent or so from a CD of that term length.” Clark says.


While the FDIC doesn’t insure annuities, insurance companies often tout guaranteed high returns associated with them as well as CDs.

What’s the scoop? Clark says those CDs are often being done in a deal with annuity salespeople and small banks.

“The annuity salesperson is paying the bank the money to pay you the 2.5 or 3% interest for six months or a year,” Clark says. “Why? Because the annuity salesperson now knows who you are, they know how much money you have, and they just bide their time because six months or a year later, it’s going to be time to renew that CD and it’s going to go from 2.5% or 3% down to a quarter of a percent or half a percent or something like that.

”So, that’s when the annuity salesperson pounces, because they know, ‘Hey they put $200,000 in this CD. I know because I had to pay the interest for them. But now I’ve got this qualified lead. And i’m going to sink my teeth into them and I’m going to rip them off to the end of the Earth.”

How are they going to be ripped off? By selling them “a piece of garbage, high commission, high-fee awful, terrible, rotten, gross annuity,” Clark says.

How To Protect Yourself

Clark advises that you tread extremely carefully if you’re considering investing with any company offering a high-interest CD rate right now.

“Know that when you see those offers for those higher CD rates, you’ve got about a 99% chance that this is the equivalent of going to stay at a timeshare for free or cheap so that you have to go hear the multi-hour high-pressure presentation,” he says.

As for annuities, Clark is not a fan but he says a longevity annuity “could be absolutely great.” Read about its benefits here.

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