Conservative Gamble: Betting APY On Market, Not Principal

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ChevronTexaco Credit Union has seen good response from members investing in certificates tied to the stock market's performance.

The credit union's Equity Index Share Certificate gives members a chance to garner a return if the S&P 500 Index has a positive change during the term of the investment; the investment is sold as three-, four- and five-year certificates. If the S&P 500 declines over the period, the investor cannot lose any part of his or her original stake.

Suzanne Walden, vice president of marketing for ChevronTexaco CU, said the maximum rate of return is capped at between 30% and 45%- depending on market conditions at the time of purchase. The minimum investment is $500.

"The product allows our members to participate in the returns of the equity market without risking principle," she said. "Hopefully, this will stop the outflow of capital from credit unions to the equity market as the market begins to rebound."

ChevronTexaco CU first offered five-year Equity Index Share Certificates to its members during a 30-day period ending Nov. 14, 2003. Walden said because the product was new, CTCU expected it would bring in about $1 million. Instead, members invested $3 million.

After the popularity of the first offering, CTCU has made the share certificates available to members twice this year. In March, it sold $5 million in four-year certificates and an additional $2 million in three-year certificates. In April, members invested $1.1 million in four-year certificates.

"This is such a nice product because members' principle is guaranteed," said Walden. "They have the potential gain without the risk, so there is an upside and the worst-case scenario is no dividend."

Because of the uncertainty in long-term investment in the stock market, CTCU cannot declare an annual percentage yield. Walden said CTCU tells members to expect interest income of approximately 3% per year will be reported to the IRS annually on a 1099 Original Issue Discount.

ChevronTexaco CU plans to offer the Equity Index Share Certificate three to four times per year, depending on how the market is doing.

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