Once a favorite product of banks catering to conservative investors, the equity-linked certificate of deposit is making a splash at Charles Schwab & Co.
In its latest foray into the equity-linked CD market, the San Francisco brokerage company unveiled two certificates of deposit on Monday.
These CDs, which are available until April 6, track the Standard & Poor's 500 Index and the American Stock Exchange Pharmaceutical Index.
Underwritten by Bank One Corp. of Chicago, the products offer investors Federal Deposit Insurance Corp. coverage of up to $100,000 and principal protection if the investor holds the five-year CD until maturity.
The products require a $10,000 investment and cater to investors who want to guard their principal while benefiting from gains in the stock market, said John Ladensack, a senior vice president in fixed income at Schwab's capital markets and trading group. "Those are appealing notions to retail investors," he said.
Schwab is targeting investors who are looking for a sophisticated investment that doesn't carry a lot of risk, he said.
The brokerage company has rolled out about five equity-linked CDs in the past 12 months, including at least one tracking the S&P 500.
Mr. Ladensack would not divulge revenues for the program so far but said that Schwab has committed itself to launching CDs quarterly.
Schwab said its main competition continues to come from banking companies, which first started offering such products in the early 1990s. Mr. Ladensack named First Union Corp. as a likely competitor. A spokeswoman said the Charlotte, N.C., banking company has offered equity-linked CDs for the past year.
Equity-linked CDs tend to be more "salable in a volatile market," said Geoffrey H. Bobroff, a consultant based in East Greenwich, R.I.
Wealthy investors seeking to preserve assets while getting more out of their money generally favor them, Mr. Bobroff said.
That is good news for Schwab, which is buying the New York private banking company U.S. Trust Corp. The deal is scheduled to close in July.
