NEW YORK – Goldman Sachs Group Inc. plans to issue four certificates of deposit linked to stocks as record low interest rates drive investor demand for the potentially higher-yielding CDs.
The structured CDs are the bank’s first and are set to price at the end of the month, a person with knowledge of the offerings who declined to be identified because terms aren’t set told American Banker, an affiliate of Credit Union Journal. One four-year CD is linked to changes in the Dow Jones Industrial Average, with annual returns at a minimum of about 0.5% and a possible maximum of 24%, according to a preliminary sales document. That compares with the average yield of 1.15% for a three-year, fixed-rate deposit, Bankrate.com data show.
Banks benefit from issuing structured CDs, which the FDIC insures up to $250,000, by raising deposits at lower funding levels and collecting commissions, said Tim Bonacci of CD Funding Securities LLC, who has helped about 30 financial institutions set up their own proprietary CD business since 2005. The average fee on a five-year deposit is about 3%, Bonacci said in an interview last month with American Banker.
