Some banks are hoping the stock market's volatility will create opportunities for them to cash in on novel versions of certificates of deposit.
Citicorp last week ran full-page newspaper ads touting its Market Rate Account, which pays a relatively high interest rate-5.15%-while allowing customers to add or withdraw money after seven days.
"Imagine waiting out the stormy market in a safe place," the ad reads. "While you wait and see where the market's going, your money can be productive and protected."
And Marine Midland Bank is seeing increased interest in its Stock Market CD, a federally insured deposit product linked to the Standard & Poor's 500 stock index.
In Marine's 12-month CD, the principal is protected, and customers are paid interest equal to each month's percentage increase in the index.
"We're certainly seeing a lot of interest since there has been volatility in the market," said Simon Moules, executive vice president in Marine's investment services division. "It appeals to those who want their principal protected and want to capture some upside."
The latest Stock Market CD to mature, on Aug. 18, had a return of 15%.
Mr. Moules would not say exactly how much business the bank has done in the product, but said the size of the offerings has been increasing over the past few months.
Marine has not decided whether to launch a marketing push for the product while the market remains volatile, he said. Many banks rolled out stock-market-linked CDs in the early 1990s, but dropped them because of a lack of customer interest and poor performance linked to a stock market dip.
Bill Anderson, publisher of Bank Rate Monitor, Coral Gables, Fla., said that investors who are already in mutual funds are likely to transfer their money to bond and money market funds from stock funds.
But new money could go into products like Citicorp's Market Rate Account, he said. Though the product is not linked to an equity index, it is similar to a mutual fund in that it is liquid.
"That's unusual, and I think it's a good marketing ploy on their part," Mr. Anderson said.
Peggy Dyer, head of national marketing for Citicorp, said the ad campaign, which will run through the end of the month, "had a lot to do with being opportunistic in the marketplace. Some of our customers were looking for additional options."
Mr. Anderson said Marine's market-linked CD could also benefit from the turbulence in the stock market by offering security to faint-hearted investors.
"They may get very good results with this," he said.
Citicorp's account requires a minimum deposit of $10,000. In exchange, customers get a return, 5.15%, that is considerably better than regular CDs offer.
The average yield for a six-month CD is 4.64%, according to Bank Rate Monitor. One-year CDs pay an average of 4.88%, while five-year CDs pay 5.2% on average.
In contrast, all kinds of mutual funds have been hammered lately. Some examples: For July and August, domestic growth funds fell 18%, balanced domestic funds fell 10%, and global equity funds plunged 16%, according to CDA Wiesenberger, based in Rockville, Md. CDA Wiesenberger is owned by Thomson Corp., which owns American Banker.
CDs, including the versions with a twist such as those that are offered by Citicorp and Marine, may be a bit more profitable for banks than regular CDs, said Kenneth Kehrer, a consultant in Princeton, N.J.
But they are less profitable than mutual funds or annuities, he said.