Index linked CDs

The classic "Certificate of Deposit" CD is the the fixed interest rate CD. There is also an index linked CD where the interest rate on the CD varies with the underlying equity index. It can go down or up and there is no guarantee that you will get a fixed return after maturity, although there is a high probability for the return to be higher than a traditional fixed rate CD should the market behave well.

There is one interesting catch with an index linked CD though that sets it apart from mutual funds and raw stocks. Your principal is FDIC insured. So at the end of 6 months, you may not make any money on the principal but the volatility of the equity market does not eat up your principal, something that would happen in a mutual fund or a raw stock.

Index linked CDs are an attractive option for nervous wannabe stock market investors who don't want to lose what they have but don't mind making more!. Index linked CDs are ideal for an IRA account. You get tax deferred capital preservation with a possibility of making money!