Structured CDs and notes
Key Points
- Structured CDs and notes typically pair a fixed income investment (such as a CD or bond) with a performance component (generally an option).
- Structured CDs and notes may help you diversify your portfolio and protect it from market volatility.
- Structured products are complex products that involve investment risk and other substantial risks compared to traditional investments and may not be appropriate for all investors.
Potential benefits and risks of structured CDs and notes
- Reduced volatility. Structured CDs and notes may reduce the effects of market volatility within your portfolio.
- Principal protection. If you select a 100% principal protected note or CD (see important disclosures below), the amount of your initial investment may be protected if you hold it until maturity, subject to the creditworthiness of the issuer. In addition, there is a possibility for gains on your initial investment. If you select a product with less than 100% principal protection your principal will be at greater risk of loss but more of your investment may be put towards the participation. Note that there can be substantial penalties or charges for early redemption prior to the maturity of the CD.
- Participation. Structured CDs and notes may provide enhanced performance and/or above market coupons.
- Potential risks of structured CDs and Notes are noted in the corresponding Risk Acknowledgment form and include but are not limited to: Lack of Liquidity, Loss of principal beyond FDIC limits for CDs, Loss of principal for notes, call risk and complexity.
Investment considerations
- The tax treatment of structured CDs or structured notes can be complicated. For example, investors may pay tax on the earnings of the structured CD each year, even though the investor will not receive any money until the maturity date.
- Performance potential or returns on structured CDs are typically taxed at the rate of ordinary income, not at the lower rate assigned to capital gains and dividends. Thus, investors should consider any potential tax consequences when investing in structured CDs or structured notes.
- If the structured note is called, investors may not be able to reinvest their money at the same rate of return provided by the structured note that the issuer redeemed.
Structured CDs and notes available from Ameriprise Financial
- FDIC-insured structured CDs are issued by U.S. banks and your initial investment is backed by FDIC insurance up to applicable limits.
- 100% principal-protected notes are issued by third-party banks. These notes sold through Ameriprise Financial are registered with the SEC and offer principal protection if the note is held to maturity, subject to the creditworthiness of the issuer.
- Principal-at-risk structured notes may help mitigate market loss, to varying degrees and offer the possibility of enhanced performance potential. These notes generally have maturity ranges from three months to seven years.
- Callable yield structured notes are a special class of principal-at-risk structured notes securities with possibility of a knock-in, referred to as callable yield notes or auto-callable yield notes. The issuer may have the right or the obligation to call the security away from the owner at preset call dates and at preset index levels, while also paying fixed or contingent coupon amounts at set intervals over the life of the note.
Take the next step
An Ameriprise financial advisor can work with you to determine if one of these products may be appropriate for you, and then construct a portfolio that uses structured CDs and/or notes with the objective of using varying levels of downside protection while simultaneously maintaining potential for enhanced market participation. To find out more about structured CDs and/or notes, contact your Ameriprise financial advisor or locate an advisor near you.
Structured products are complex products that involve investment and other substantial risks compared to traditional investments and may not be appropriate for all investors. Investors should consider the investment objectives, risks, charges and expenses of the structured product carefully before investing. The prospectus and term sheet contain this and other important information about the product. Clients should read the prospectus and term sheet carefully before investing.
IMPORTANT RISK CONSIDERATIONS
In the case of structured notes, protection of principal is subject to the creditworthiness of the issuer. Structured notes holders may lose up to 100% of their investment upon the bankruptcy of the issuer, even if the value of the reference asset is favorable. Creditworthiness of the issuer may change at any time during the term of the note.
Generally, structured products are not listed on an exchange, do not trade, and are not liquid. The price is provided by the issuer, or an affiliate of the issuer. In addition, broker-dealers affiliated with the issuers often make a market in structured products, but may not be able to offer liquidity, or the price may be substantially less than the original payment. Investors should be willing and able to hold their structured product investment until maturity.
General market and economic factors, some of which may be unpredictable will affect the underlying instruments or the value of the structured product. Structured products are subject to market, interest rate, and volatility risks.
Limits or caps in the appreciation of the underlying asset can limit upside appreciation while investors are still exposed to downside risk.
Each offering may differ. There may be fees and costs that may impact the return of principal as well as negatively impact the performance of the product. The initial price of a purchase includes the underwriter’s commissions, the issuer’s cost of hedging its obligations for the deposit, and possibly other costs and expenses. The issuer will use part of an investor’s deposit to fund hedging activity, which means that less of an investor’s deposit is working for a performance return and that their performance return may be adversely impacted. To the extent the issuer generates proceeds from hedging activity, the proceeds are retained by the issuer. Investors should carefully review the prospectus and term sheets and discuss these fees and costs with their advisor before deciding to invest.
Diversification does not assure a profit or protect against loss.
Investors in structured products should bring the applicable term sheet and prospectus to their tax advisor for consultation.
Although CDs are generally FDIC insured up to the applicable limits (currently $250,000), the FDIC insurance applies only to the principal investment and will not cover any potential performance. FDIC thresholds are limited to all deposits held in the same insurable capacity at any one issuer.
Structured products are distributed by Ameriprise Financial, but are issued by third party sponsors.
Structured products may or may not be federally or FDIC-insured, deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Structured products may or may not be federally or FDIC-insured, deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Securities offered by Ameriprise Financial Services, LLC. Member FINRA and SIPC.