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Retail Deposit Notes
(Source: Merrill Lynch)

New investment opportunity

Whether your investment objective is capital preservation or current income, innovative deposit notes can help you reach your goal. Deposit notes not only bridge the gap between corporate bonds and insured certificates of deposit (CDs), but they also offer investors the following special combination of advantages in an investment vehicle with an optional call feature:

  • The protection of federal deposit insurance.

  • Attractive yields.

  • Steady income, typically paid on the first business day of each month.

  • Intermediate maturities ranging from five to 15 years.

  • Convenient minimum denominations of $1,000.

Deposit notes can be particularly attractive for investors who are seeking dependable monthly income. They can also be especially advantageous for investors accumulating assets in Individual Retirement Accounts (IRAs) or other tax-deferred accounts where the income earned is not subject to current taxes.

High investment quality

Deposit notes are issued by banks and carry a fixed rate of interest. They represent senior bank deposit obligations and rank on equal footing with a bank's other senior obligations, like CDs.

Most deposit notes are rated by independent rating agencies and typically carry investment-grade credit ratings. But it's important to note that these ratings do not consider the insurance protection provided by the Federal Deposit Insurance Corporation (FDIC).

The Security of FDIC Insurance

Deposit notes are insured by the FDIC and backed by the full faith and credit of the United States. Interest and principal are fully insured up to the $100,000 FDIC insurance limit for all deposits (including CDs and other deposits) held at the same depository institution in the same beneficial capacity by each depositor. However, if you purchase deposit notes in the secondary market at a premium to their par value, that premium is not insured by the FDIC.

Call Feature

Deposit notes are issued with optional call provisions that allow the issuer to redeem the notes prior to their stated maturity date. The uncertainty created by this call feature is the reason why deposit notes provide a higher yield than otherwise similar non-callable investments, such as CDs and U.S. Treasury securities. Furthermore, when deposit notes are called after interest rates decline, as is often the case, you may have to reinvest principal at lower interest rates.


If you need to sell your deposit notes prior to maturity, you may do so in the secondary market. The price you receive in the secondary market may be higher or lower than the price you originally paid, depending on market conditions.

Recommended further reading:
Discounting of bank guarantees (BG's)
Risk Free Capital Accumulation
Books on Financial Instruments