Corporate Notes Offer Higher Interest, But Higher Risk As Well

Corporate Notes Offer Higher Interest, But Higher Risk As Well

A GE Interest Plus account gives savers one of the highest interest rates around in today's market - an APY of 1.00% and above. However, this type of account - corporate notes - isn't FDIC insured. So, is the risk worth the investment?

We’re all familiar with traditional savings accounts, money market accounts, and CDs. But you may not have heard of a product called corporate notes. A few companies, like GE Capital, provide you with the ability to directly invest in unsecured debt. They are different from stocks: they are sold at face value in set increments, with a fixed coupon rate. Traditional corporate notes initial offerings are usually restricted to institutions and wealthy individuals, but some—like through GE Interest Plus—are available to individual investors.  

The GE Interest Plus account currently offers an interest rate of 1.00% for deposits under 15K, 1.05% for deposits 15k - $49,999, and 1.10% for investment amounts from $50K - $5MM. The rates may be reset weekly, and the minimum investment is $500. If your total investment falls below $500, they have the right to redeem all of your investment but they will give you at least 30 days written notice reminding you of the minimum and indicating a redemption date if you do not bring your total investment up to the minimum level.

You can redeem any part of your investment at any time without penalty, subject to a minimum of $25 and a maximum of $50K per redemption. Redemptions are easy and obtained via ACH transfer or via check. If you link your bank account to your GE Interest Plus account, you can write an unlimited number of checks for $250 or more (and wire transfers). There are also no management or maintenance fees on this account, so the APY you earn is earned on the total amount of your investment.

However, as mentioned, there are more risks involved with corporate notes than with than with traditional FDIC-insured investments. The notes are subject to credit and secondary market risk, and offer no insurance on the initial deposit amount. Therefore, it is possible to lose some—or all—of the principle invested.

There are a few traditional savings accounts that earn close to the current APY offering of the GE Interest Plus account, so you should consider all options and alternatives before investing. Additionally, you should read the prospectus on the GE Interest Plus account, which is available here. You should always investigate the financial strength of the company as well, and only invest if you feel comfortable and confident in the corporation or entity.

Image: Image courtesy of Stuart Miles at FreeDigitalPhotos.net

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