Investment certificate
Encyclopedia
An investment certificate is an investment product offered by an investment company or brokerage firm designed to offer a competitive yield to an investor with the added safety of their principal.
A certificate allows the investor to make an investment and to earn a guaranteed interest rate for a predetermined amount of time. The product rules and specifics can vary depending on the company selling the certificates.
the principal and interest was returned to the investor.
. Allowing the investor to select a term length (typically between 3 months to 3 years) and earn a guaranteed interest rate. These certificates are flexible and allow add-on payments during the term or withdrawals up to a specified amount without a charge. There are also certificate products which feature an interest rate that is tied to the stock market, namely the S&P 500
index. While each certificate product has its own rules they all have one common factor, security of the investor's principal.
(IRA). All certificates must have a maturity date, typically 20 to 30 years from the time of deposit; the maturity date is the point at which the certificate can no longer renew and must be cashed in. With tax-deferred certificates this means at the point of surrender all interest earned in the account is reportable and taxable in that year. Many investors will hold onto tax-deferred certificates for the full length of time and the interest earned can be quite substantial. At the time of surrender, the interest earned would create a large tax liability to the investor. To help with this, many companies offer what is referred to as options. Some option' allow the
investor to take only a portion of the account out per year to help spread the tax liability through several tax seasons.
(CD) offered by a banking institution. Being an investment product, it is not insured by the federal government or the Federal Deposit Insurance Corporation
.http://www.ameriprise.com/amp/global/docs/certificate/6000.pdf Surrenders from a certificate, unlike a certificate of deposit
must be reported to the Internal Revenue Service
on the individual investor's tax returns. These surrenders would be shown on a 1099-R form for retirement accounts or a 1099-B for non-retirement accounts.http://www.irs.gov Certificates also typically have lower surrender charges if the money is withdrawn early compared to certificates of deposits and feature a longer grace period between terms (generally between 14–16 days)Certificate of deposit
.
A certificate allows the investor to make an investment and to earn a guaranteed interest rate for a predetermined amount of time. The product rules and specifics can vary depending on the company selling the certificates.
History
The investment certificate was first introduced to the public in 1894 by John Tappan of Investor's Syndicate. Investor's Syndicate marketed the product as a Face Amount Certificate. It allowed the investor to deposit a selected sum of money into the certificate and in turn the investor would receive a guaranteed interest rate after a predetermined amount of time. After the selected length of time had passed, or at maturityMaturity (finance)
In finance, maturity or maturity date refers to the final payment date of a loan or other financial instrument, at which point the principal is due to be paid....
the principal and interest was returned to the investor.
Product terms
Depending on the financial institution, certificates can offer various term options. Some certificates can be very liquid allowing for frequent deposits and/or withdrawals without penalty. Other certificates may more closely match the typical rules of a certificate of depositCertificate of deposit
A certificate of Deposit is a time deposit, a financial product commonly offered to consumers in the United States by banks, thrift institutions, and credit unions....
. Allowing the investor to select a term length (typically between 3 months to 3 years) and earn a guaranteed interest rate. These certificates are flexible and allow add-on payments during the term or withdrawals up to a specified amount without a charge. There are also certificate products which feature an interest rate that is tied to the stock market, namely the S&P 500
S&P 500
The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock...
index. While each certificate product has its own rules they all have one common factor, security of the investor's principal.
Tax-deferred certificates
Some investment certificates are tax-deferred. The investor deposits a single lump sum of money into the certificate to earn a guaranteed interest rate. Most tax-deferred certificates do not allow add-on payments or partial withdrawals. The interest earned in such certificates grow tax-deferred, much like an Individual Retirement AccountIndividual Retirement Account
An individual retirement arrangement is the blanket term for a form of retirement plan that provides tax advantages for retirement savings in the United States...
(IRA). All certificates must have a maturity date, typically 20 to 30 years from the time of deposit; the maturity date is the point at which the certificate can no longer renew and must be cashed in. With tax-deferred certificates this means at the point of surrender all interest earned in the account is reportable and taxable in that year. Many investors will hold onto tax-deferred certificates for the full length of time and the interest earned can be quite substantial. At the time of surrender, the interest earned would create a large tax liability to the investor. To help with this, many companies offer what is referred to as options. Some option' allow the
investor to take only a portion of the account out per year to help spread the tax liability through several tax seasons.
Difference between an investment certificate and CD
A certificate is an investment product unlike a certificate of depositCertificate of deposit
A certificate of Deposit is a time deposit, a financial product commonly offered to consumers in the United States by banks, thrift institutions, and credit unions....
(CD) offered by a banking institution. Being an investment product, it is not insured by the federal government or the Federal Deposit Insurance Corporation
Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. , the FDIC insures deposits at...
.http://www.ameriprise.com/amp/global/docs/certificate/6000.pdf Surrenders from a certificate, unlike a certificate of deposit
Certificate of deposit
A certificate of Deposit is a time deposit, a financial product commonly offered to consumers in the United States by banks, thrift institutions, and credit unions....
must be reported to the Internal Revenue Service
Internal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...
on the individual investor's tax returns. These surrenders would be shown on a 1099-R form for retirement accounts or a 1099-B for non-retirement accounts.http://www.irs.gov Certificates also typically have lower surrender charges if the money is withdrawn early compared to certificates of deposits and feature a longer grace period between terms (generally between 14–16 days)Certificate of deposit
Certificate of deposit
A certificate of Deposit is a time deposit, a financial product commonly offered to consumers in the United States by banks, thrift institutions, and credit unions....
.