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My broker, Schwab, offers an FDIC-insured CD with CUSIP 38148J6B2. The CD matures on 1/21/2020, with a fixed semi-annual coupon rate of 1.950%. It is priced at par ($100) with an APY of 1.950%. Does this mean that if I buy it, I earn 1.950% in interest on each CD, for the next five years each year until maturity, with the only catch being that I lose money if I try to sell it before the maturity date or if rates go up (so I could get a better CD if I wasn't tied down)?

I ask because it's way better than the 1% I earn on my savings account and I think the only risk is that I'm locked into the CD for five years.

edit - thanks to JB King for the correction.

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    4 years and 13 days if you bought today so not quite the 5 years.
    – JB King
    Commented Jan 8, 2016 at 21:30
  • @JBKing Thanks JB I corrected the question. Does this mean that I get 1.950% in total interest each year, paid in semi-annual installments?
    – Henry
    Commented Jan 8, 2016 at 22:15
  • Yes, that is how I'd read it. There may be penalties if you try to cash it out early of course but that is likely another part of the quote I suspect.
    – JB King
    Commented Jan 8, 2016 at 22:16
  • Note that a cash flow of $1.95 a year for five years, and a cash flow of $0.975 every 6 months for five years, have different values and imply different effective annual rates of interest. More frequent is better...
    – DJohnM
    Commented Jan 8, 2016 at 22:48

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I think your understanding is correct as far as you describe, but you don't mention a critical detail to me. You also imply some penalty details for early withdrawal / cancellation but you don't state those terms in detail.

Where and when is the interest paid? Does it go into the same CD for compounding? Does it get paid to another account? The description does say that it is priced at par, so we at least know that the interest doesn't have to be stuck unpaid within the CD until maturity, but it also means you don't necessarily get compounding at the CD rate.

Without knowing where the interest goes, and if it's available for compounding, be careful in how you compare it to other CDs / savings accounts. A compoundable structure might be a better option, even at a lower APY.

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