Bank South and Great Western Bank have joined the list of banks offering insured certificates of deposit with yields linked to the stock market.
Both institutions last week unveiled CDs whose payouts are tied to the performance of Standard & Poor's index of 500 stocks.
In doing so, they followed in the footsteps of such industry leaders as Citibank, NationsBank, and Shawmut National Bank, all of which have introduced stock-indexed CDs this year.
A Five-Year Term
Banks are betting that such CDs will be a popular alternative to the low fixed-rate yields on traditional CDs.
Because stock-indexed CDs are backed by the Federal Deposit Insurance Corp., buyers are guaranteed that they will not lose principal.
How much interest they earn, however, depends on how the stock market performs and on the precise workings of the formula for calculating interest.
Atlanta-based Bank South's offering, dubbed the Stock IRA CD, has a five-year term designed for individual retirement accounts.
Its rate will be based on the average of the month-end S&P 500 index over the term of the CD. The change in the average will be multiplied by two to calculate the interest rate.
"This is an ideal product for the conservative investor who wants to invest in the stock market and have the potential to earn higher yields in a low-interest environment," said Lee M. Sessions Jr., head of consumer, investment management, and trust banking at Bank South.
Chatsworth, Calif.-based Great Western Bank, the nation's second-largest thrift, calls its version the Great Western Investor's CD. It has a three-year term, and is available for IRA and non-IRA accounts.
Interest for each 12-month period is based on monthly increases or decreases in the S&P 500 Index.