An Alabama thrift has begun issuing a certificate of deposit tied to the performance of the Standard & Poor's 500 Index, and a Michigan bank is about to issue one.

New South Federal Savings Bank, a $2 billion-asset Birmingham thrift, began offering a market-tracking certificate of deposit Tuesday that allows individuals to invest in the stock market without risking their initial investment.

The market-tracking CD is one of the first offered by a community or regional bank that lets investors benefit from stock market gains posted by the S&P 500.

New South Federal's CD, which investors must buy by Friday, has a three-year term and a $5,000 minimum deposit. The product is being sold through its two branches in Birmingham, over the Internet, and through the thrift's phone center.

Tommy Little, vice president of deposit operations for New South, said this new product is attractive because a customer's principal is insured by the Federal Deposit Insurance Corp., up to $100,000.

"Since the money is tied to the performance of the market, customers have the opportunity to earn higher gains than a predetermined interest rate," Mr. Little said. "No matter how the market performs, you will always maintain your original deposit amount."

New South Federal currently has $2.2 billion of deposits, $900 million of which is in CDs.

Because the market-tracking CD's yield will be determined by the performance of the S&P 500 Index, rather than by the thrift, it is difficult to compare the new CD to the thrift's other CDs, Mr. Little said.

The new CD is not for everyone; for example, it is not meant for those looking for an immediate return, or for whom a CD is their only means of savings, he said.

"This product is for people who aren't fearful of longer terms," Mr. Little said. "We have received a lot of interest from people with IRA accounts who want to deposit their rollovers."

Jackson Federal Bank of Lansing, Mich., a unit of Jackson National Life Insurance Co., will introduce its MartketPath CD on Dec. 1 and market it to the bank platforms the parent company services.

Jackson Federal's product is a five- or seven-year CD with a minimum deposit of $5,000. The rate of return, like the New South Federal product, will be linked to the performance of the S&P 500, and the initial deposit is FDIC-insured.

Brad Powell, an executive vice president at $1 billion-asset Jackson Federal, said his product is also geared for longer-term savings.

"This is truly a retirement savings product," Mr. Powell said. "We aren't catering to individuals that are looking to make a quick dollar here. We want people to invest in this certificate of deposit and make money in the stock market over time."

Robert Colvin, president of Risk Analytics, a Denver investment advisory firm, said the S&P 500 Index CD programs will allow banks with less than $10 billion of assets to compete for deposits. By offering these products, banks can "slow the drain of deposits by allowing them to provide customers with an investment product at no risk," he said.

Banks with under $10 billion of assets usually cannot afford to offer these CDs because of the potential high rates of returns, Mr. Colvin said.

New South Federal can handle the potential risk because it's a short-term offering - only available for purchase for three days. However, Mr. Little said they may repeat the offering every six months.

Risk Analytics began marketing this type of CD to smaller banks in August. Participating banks can mange the return risk by purchasing hedging positions from the Federal Home Loan Banks. Thus far 100 banks are considering the product, and 25 are planning to unveil it shortly.

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