Q:

What are market-linked CD rates?

A:

Quick Answer

Market-linked, or equity-linked, certificate of deposit, or CD, rates refer to the rates of return earned at the maturity of this specific type of CD. These rates vary based on several factors, including the term, participation rate, and interest cap of the CD, notes CD Rates Prophet.

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Full Answer

The financial institution that a market-linked certificate of deposit is purchased from calculates the appropriate rate of return at the date of maturity based on several terms of the contract, according to the U.S. Securities and Exchange Commission. For instance, the participation rate outlines what percentage of the index's increase is actually calculated into the CD's rate of return at maturity. Additionally, market-linked CDs may also have an interest cap that limits the amount of interest gained per year in order to protect the financial institution, notes CD Rates Prophet.

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