JP Morgan Chase's Callable Step-Up CD is to be Avoided

JP Morgan Chase's Callable Step-Up CD is to be Avoided

Rate information contained on this page may have changed. Please find latest cd rates.

TD Ameritrade is currently syndicating a 6 year callable step-up CD issued by JP Morgan Chase. The CD represents perhaps the most transparent "heads I win, tails you lose" offering available, and should be avoided.

The JP Morgan Chase CD being syndicated by TD Ameritrade has a maximum maturity of 6 years, paying 1% for the first two years, 2% for the next year, 3% in years 4 and 5, and 5% in year 6.  The note - however attractive it may appear at first glance - is callable anytime after 6 months and therefore should be absolutely avoided.

More likely than not, if interest rates remain low, JP Morgan Chase is going to call the note within the first two years.  If interest rates, however, were to begin to revert to historically normal levels over the next two years, JP Morgan can continue to pay note holders rates which may very well be below market rates at that time into years 3 through 5, calling the CD at any point should it be offer a rate than begins to become close to a normal rate of return.

Since JP Morgan Chase has the call option, the entire proposition is in their favor, and while I have often advocated that investors look at structured notes that involve their effective sale of a call option, those notes always involve the receipt of higher interest rates in the near term in return for the sale of the call (often as high as 10 or 11%).  In this case, JP Morgan is giving depositors a 1% interest rate for the first two years - a rate which is even worse than the best cash rates today!   See and compare the best cash rates here.

To boot, these types of syndicated structured notes are not liquid, and cannot even be redeemed early by paying an interest penalty the way that ordinary CDs can.  Rather, purchasers of these notes who want out early will essentially be relying on TD Ameritrade (or a subsequent broker) to go out and get the market price (i.e., take whatever anyone is willing to pay for the CD).

Even a depositor who wants to bet that rates are not going to rise over the next 5 years and is willing to lock into a rate for that time would be better off buying a 5 year CD.  The current best rate on a 5 year CD is 2.32%.  Exclusive of tax consequences, $100,000 invested in that CD will produce $12,150 over the next five years versus the JP Morgan Chase product which will produce $10,386 if not called earlier.  The 5 year bank CD, unlike the JP Morgan product, can be redeemed early by payment of an interest penalty fee.

A still more logical choice in this current environment in light of the reality that rates are likely to go up at some point over the next two years is to either stay in cash, or to invest in a two year CD.  One of the most interesting 2 year CDs available today is a RampUp Plus CD offered by CIT Bank, currently paying 1.35%.  These CDs offer not only better fixed rates than the JP Morgan Chase callable CDs over the next two years, but enable depositors a one-time rate increase if rates should rise over that period.  (The RampUp products were recently named a Best Bet for 2015 by BestCashCow.com.)

Under any circumstances, there are plenty of good CD options available, even in the current rate environment.  The JP Morgan Chase product currently being syndicated by TD Ameritrade should be avoided. 

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

Your code to embed this article on your website* :

*You are allowed to change only styles on the code of this iframe.

Today's Highest Online CD Rates

Bank Product Term Interest Rate (APY)
Quontic Bank 1-Year 2.25% APY with $1,000 minimum
Navy Federal Credit Union 1-Year 2.20% APY with $100,000 minimum
BAC Florida 1-Year 2.15% APY with $100,000 minimum
Connexus Credit Union 3-Year 2.50% APY with $5,000 minimum
Navy Federal Credit Union 3-Year 2.35% APY with $100,000 minimum
Bank5 Connect 3-Year 2.30% APY with $500 minimum
Dollar Savings Direct, a division of Emigrant Bank 5-Year 2.80% APY with $1,000 minimum
Connexus Credit Union 5-Year 2.60% APY with $5,000 minimum
Prime Alliance Bank 5-Year 2.50% APY with $500 minimum

See More Online CD Rates →

Comments

  • Linda Ellen Price

    June 12, 2019

    I am suing Regions bank for lying to me about an 8% return on a one year CD I have the top law firm in my state, (and they win) waiting on my date to pick up the CD and the interest in July 2019. If the interest is not there or any of my money is not there we sue. The attorney, quite reputable, states to me they will ruin Regions bank for lying to me.
    The is in Birmingham Alabama

  • EDDIE Phann

    April 05, 2018

    I wish I have read this article sooner. I have one JP Morgan callable cd for 7 years. After I bought that CD , it lose $4000 right the way.
    Now , 3 years later, I lost $4900. The strange thing is I have to pay tax every year, even losing money every year.
    That CD promise that it will return my premium when it matured. I quest that JP Morgan has got my money as no interest load for 7 years, and they may make double amount in this 7 yeas, but I will get no interest, NOTHING.
    This is a cheating, somebody should stop this cheating.

  • «
  • Page 1 of 1
  • »
Add your Comment