Everybank Market Safe CD

One potential catch is that early withdrawals are at the discretion of EverBank.

Their fee is 4% of the interest you forfeit, as Penfed offers 5yr CD for 5% right now, while theirs is 1%.

What's the penalty for early redemption?

Can you do the same in the financial market for less?

Everbank would need to buy the put at 105% of the price on 7/22 so that they could realize that amount at maturity and pay back the investor. Probably a european-style put would be sufficient and cheaper.

Also what about the trading, custody, record-keeping, accounting, auditing, for the S&P500 investments? Would $2.1K be enough to buy the put and pay for all expenses?

Sorry, I misread your post. You are saying buy a 5% or 6% CD for five years to return $10,500 in five years and buy the S&P500 call at 105 and grab the upside. Got your approach.

I ran the numbers with 5% return on the 5yr CD and the cash available is $1,773 to buy the call. I still doubtful that you could buy the call at that price. Insurance is never free.

HappyGuy said: The easier way to look at this is to compare it to the currently available 6% 5 year CD. The 5% difference between the guaranteed return and the 6% CD yield should be used to purchase S&P 500 CALL options.

Just ran the numbers:
A 10,000 investment in this cd will return a minimum of $10,500
To reach $10,500 with the 6% CD you would need to invest $7,846
This leaves you with $2,154 you could use to purchase S&P 500 options to construct a similar security.

Absolutely, that's why we are trying to see what the catch is. It's like the golden goose, and we are looking for pimples.

Bankrate gives Everbank of Florida 4 out of 5 stars - Catergory: Sound.
Safe & Sound CAEL Rating is 2 out of 5 with 1 being the highest - Catergory - Sound.

Legit? Bankrate rates Everbank of Florida, but the bank has mailing addresses in NY and St. Louis, MO.

Anyone familiar with the bank and knows whether it has its charter in FL?

Just called their Market Safe information line. I was told that there are no fees for the product, specifically stated that there are no management fees as per the product summary. Also stated that they use options to make this offer. The guy didn't appear to know very much else and didn't inspire a lot of confidence.

ETFnerd said: The question is why would I ever invest in the Vanguard 500 fund if:

1) I could invest in the Marketsafe CD,
2) get all of the appreciation, with no losses,
3) zero fees,
4) a guaranteed 5% return for the 5 yrs (0.98% annually) and
5) FDIC insurance on the principal to boot?

One reason, vanguard 500 is liquid and value is transparent.

Hi Happy Guy,

Usually I have a long horizon for investments, so liquidity wouldn't be an issue, especially if we determine together that this type of investment is best left inside a tax-sheltered retirement account.

Also in terms of transparency, we do not have a view of the underlying securities, but we can calculate exactly what we stand to make based on the semi-annual pricing dates beginning 1/26/06. The S&P value on these dates is perfectly transparent, when it happens. I would view that the Bank is obligated to pay out based on S&P500 returns, not the returns of the underlying investments as would be the case in a mutual fund. If their investments fall short, they still would need to pay as promised under the CD terms. Therefore, the only concern should be the financial viability of the bank in 5 years. Am I thinking about this incorrectly?

Everbank of Florida was a retail bank based in Jacksonville, FL, and it was bought out by Alliance Capital Partners - the same company that owns Priceline mortgage.

[Press Release

This company is legit, I bank with them for 5 years already.. nothing wrong with them.. This CD seems to be good.. I remember State Farm having something similar

mobilebuddha said: regarding your (4), that's 5% return each year for 5 years. correct? or am i reading their text wrong?
You get a 5% return after 5 years (which is the same as a 0.98% annual return with compounding).

That is the key: nothing is compounded. Also, the yearly returns for the S&P listed on the Everbank website are irrelevant: what you are looking for are the 5 year returns from the recent past. If the market goes down 20% this year and up 20% the following year, one would like to think that you lose nothing this year and gain 20% the following year. HOWEVER, you actually end up with a net negative gain for the index and overall, just preserving your principle (close to 0% return.)

Based on the S&P closing data from Everbanks website, this is a chart of historical 5 year returns:

Date / S&P close / 5 year return/ everbank market safe return
12/31/2004 1211.92 -0.175143781 1%
12/31/2003 1111.92 -0.095433727 1%
12/31/2002 0879.82 -0.09337098 1%
12/31/2001 1148.08 +0.54990955 54%
12/29/2000 1320.28 +1.143555274 114%
12/31/1999 1469.25 +2.199098569 219%
12/31/1998 1229.23 +1.635287812 163%
12/31/1997 0970.43 +1.227238301 122%
12/31/1996 0740.74 +0.775971613 77%
12/29/1995 0615.93
12/30/1994 0459.27
12/31/1993 0466.45
12/31/1992 0435.71
12/31/1991 0417.09

Note that a compounding 5% CD will return 27.6% after 5 years.

Using historical performance as a reference, if your initial investment in this product had been made at any time since 12/31/1997, you would have been better off putting the money away in any 5 year CD earning over 0.98% interest.

The averaging could be to your advantage if the index wiggled instead instead of trending up. Play around with the values.

So what's the verdict on this product? I think I am going to pass.

Thanks for your post OP. This stuff is what FW should be more about!

this has been discussed before, I know it, I just can't find the thread. somebody with a better memory please help me? all i can recall is that the formula that they use to calculate the S&P 500 makes the deal not very hot.

State Farm Bank also offers a similar product.

heres the State Farm T&Cs, only 90% participation rate and 100% min return (vs Everbank 100% participation rate and 105% min return)

Heres the OLD FW THREAD on State Farm and other "market rate" CDS