Community banks have raised about $20 million of deposits since mid-February by selling a new certificate of deposit whose return is determined by the performance of the Standard & Poor’s 500 index.

But Jeremy Colvin, one of the CD’s creators, said he had anticipated a bigger impact from a product that combines the potential for high, stock-driven rates of return with the certainty of deposit insurance. Designed by Risk Analytics Inc., the Index Powered CD is being offered at banks served by the Pittsburgh and Topeka Home Loan Banks. It promises a return equal to 90% of the S&P 500’s total return during its five-year term, but because it is a deposit product, the Federal Deposit Insurance Corp. protects investors’ money. So even if the stock market were to collapse during the life CD’s life, depositors are guaranteed to receive their principal back.

Ironically, it is that security that has created many of the problems banks have encountered trying to market the Index Powered CD, said Mr. Colvin, director of sales at Denver-based Risk Analytics.

If the Index Powered CD had been available in May 1996, a $10,000 investment maturing five years later would have yielded $18,863, equal to an interest rate of 13.52%. Even the highest-yielding fixed-rate CDs seldom offer rates higher than 7%.

“People are asking, ‘Where’s the catch?’ ” Mr. Colvin said. “They can’t conceive of something like this.”

The main reason for this wariness is the complex mechanism that allows the CD to pay a market-driven rate of return. It works like this:

Banks keep the deposits in their vaults, but they “swap” rates with the Federal Home Loan Bank. During the lifetime of the CD, banks pay a fixed rate — determined at the time the CD is sold — to the Federal Home Loan Bank. The Federal Home Loan Bank receives its money “up front” in the form of quarterly payments from the individual banks but assumes responsibility for paying the market-driven interest rate when the CD matures.

Further complicating the process, the Federal Home Loan Banks then swap the rate one more time, to a private futures trader, passing the interest payments through to it. According to Mr. Colvin, both the Pittsburgh and Topeka Federal Home Loan Banks use J.P. Morgan Chase & Co.

He said Morgan Chase traders would put the five-year income stream it receives as a result of the rate swap to a number of different uses in order to make money off the deal.

“Who knows what they might come up with,” he said. “What we try to tell” potential CD purchasers “is that we don’t need to know.”

But while Mr. Colvin and the banks that sell the CD go to great lengths to explain that there is no “catch” to the product, investor skepticism and the stock market’s uneven performance this year have hurt sales. The Pittsburgh Federal Home Loan Bank, which began offering the Index Powered CD to banks in its three-state service area (Pennsylvania, West Virginia, and Delaware), initially calculated that it would need to bring in deposits of $5 million a month to attract a rate-swap partner. Since Feb. 15, when it began offering the Index Powered CD, it has tallied just $11 million total in the nine participating banks, said David Jones, vice president and money desk manager at the Pittsburgh Federal Home Loan Bank.

Mr. Jones said of the deposit volume, “I wouldn’t call that large by any stretch of the imagination, but it’s gaining steam.” He added that J.P. Morgan has made the job of selling the CD easier by agreeing to swaps covering deposit volumes well below $5 million.

The Topeka Federal Home Loan Bank, which serves banks in Colorado, Kansas, Nebraska, and Oklahoma, began offering the Index Powered CD to its member banks in April. Steven D. Reichle, its senior vice president and director of correspondent banking, said, “It’s going to take six to 18 months before it starts to roll, but I believe this will be a common product at most community banks.”

But even though the number of banks offering the CD in the Topeka and Pittsburgh regions is increasing, Mr. Reichle conceded that its results have been disappointing.

“I think we had some grandiose thoughts that it would sell a little better than it actually has,” he said.

Mr. Jones said he thought banks were misdirecting their marketing.

“They’ve been selling this to their current customers, people who buy fixed-rate CDs,” he said. “They need to go out to the customers they’ve lost. Those people have been buying mutual funds, and they’ll understand how this works.”

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