Providian National Bank, the giant card operation, is now the second U.S. financial institution to be selling a certificate of deposit entirely online.

All the others except the independent VirtualBank in North Palm Beach Fla., require customers to mail in paperwork or visit a branch.

Providian's all-online five-year CD, which it started selling Oct. 10, is also the first CD it has ever sold that can be called - after one year.

Buyers must invest at least $10,000, but the annual percentage yield of about 6.9% is about half a percentage point more than the Providian Financial Corp. unit pays on noncallable five-year CDs. When the CD is called, investors are paid their principal plus whatever interest has accrued.

"Callable CD's are an excellent way to diversify a portfolio, especially when we see such swings in the market," said Joel Bostch, vice president of retail deposits a Providian Financial, which is based in San Francisco. A recent survey found that Providian customers wanted callables, he said.

Jody Bhagat, senior vice president of Providian's global e-commerce division, said offering the product online enables Providian to offer very attractive rates.

VirtualBank, whose online callable was introduced in 1999, also offers higher yields than VirtualBank's noncallables - 6.953% for the five-year callable, versus 6.907% for its noncallable counterpart. The minimum deposit is $10,000.

Ms. Bhagat said Providian brings experience and a "brick-and-mortar" reputation - though it has only three branches - to the online market in callable CDs. Providian has $6 billion of deposits in traditional CDs and money market accounts; it has $27 billion of assets under management.

Don Taylor, chief financial advisor at Bankrate.com, said that with interest rates on 10-year and 30-year Treasuries slipping, callable CDs will give investors a bump in yield. But these investors are also taking on interest rate risk, he noted.

"The bank doesn't want to lend long-term if interest rates are going down. It is willing to pay additional interest for the right to call the CD after an initial non-callable period," Mr. Taylor said. "If interest rates do go down, the CD is called away from you, and you have to reinvest at the lower interest rates. That's your interest rate risk with callable CDs."


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