A typical certificate of deposit works like a souped up bank account. You get a higher rate of interest (compared to the nearly-nothing you'd get with a regular savings account), but you have to tie up your money for some set period of time. Like a bank account, though, you can't lose anything. The CD comes with a guarantee against losses.
An uninsured certificate of deposit doesn't have that guarantee. It doesn't carry the insurance, which means you could conceivably lose money. That circumstance creates greater downside for the investment.
However, there is increased potential upside as well. The uninsured CDs typically carry a higher yield than their safer counterparts, compensating you for the increased risk.
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Finance: What are Face amount certificat...1 Views
Finance a la shmoop what are face amount certificates or FACs....F.A.C.S yeah like
just the facts man alright well they're a little bit like
an IOU or actually a lot like an IOU only face amount certificates are [IOU appears beside a FAC]
usually backed by a specific asset like a home or a rather a condo complex or an
asset of sizable value like a plane or a train or a fleet of cars an issuer says [Shmoop airlines plane in the sky]
something like well I guarantee you I'll pay you a thousand bucks either fully 14
years from now if you pay me five hundred seventy two dollars and twelve
cents today in cash or I may choose to pay you back two hundred bucks of that
thousand in installment payments every few years along the way and that's the
stream of payments how it would look with a less annoying voice yeah well [Stream of payments across 14 year]
it's bit in the vein of how t-bills are sold at auction they sell at a grand
in months later and get auctions for like nine hundred eighty two dollars and
twelve cents or something like that like you buy them at a discount and then
they mature to par and then get your par money back got it so like in
that case you made seventeen dollars and eighty eight cents....
well the big diff T-bills are backed by the US government while face amount [Uncle Sam carrying T-bill]
certificates are backed by uh you know aunt condos or worse well FAC's used to
have all kinds of tax advantages in that you didn't owe tax on them until the
face amount was paid but today the tax system requires that bonds or bond
values get marked to market each year so that if something is bought at a huge [Discount sticker appears over FAC]
discount while the owner of that bond pays the predicted gains taxes on that
bond all along the way yeah real party poopers there those
tax people not nearly as advantageous as being able to wait until the very end
pay the tax man because eventually he cometh.... [Tax man hand reaches out to grab an ant]
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