Depository institutions (banks and thrifts) have traditionally offered consumers deposit products, like checking, savings and money market deposit accounts, and certificates of deposit (CDs) for which each depositor is insured by the FDIC up to $250,000.
Increasingly, these institutions are also offering consumers a broad array of investment products that are not deposits, like mutual funds, annuities, life insurance policies, stocks and bonds. Unlike the traditional checking or savings account, however, these nondeposit investment products are not insured by the FDIC.
Non-Deposit Investment Products
These products may be offered to you in the financial institution’s lobby, through the mail or over the phone or through the Internet. Most often, the people selling these products are not financial institution employees, but employees of third-party securities broker/dealers or insurance companies.
To assure that sales representatives fully inform you about nondeposit investment products, the FDIC and other federal banking agencies have issued guidelines to financial institutions that describe the information you must be told about the risks associated with these products. The mandatory disclosures are listed below.
When you meet or talk with a sales representative about non-deposit investment products, you should be informed that:
- "This product is not insured by the Federal Deposit Insurance Corporation."
- "This product is not a deposit or other obligation of, or guaranteed by, the bank."
- "This product is subject to investment risks, including possible loss of the principle amount invested."
Sales representatives must make these disclosures to you orally and/or in writing whenever they make a presentation, provide investment advice concerning a non-deposit investment product, or open an investment account for you.
Any advertisements and other promotional materials you receive must disclose that the product is not a deposit, is not insured by FDIC, and is subject to investment risks.
Look for the logo disclosure in visual media, like television broadcasts, ATM screens, billboards, signs, posters, and in written advertisement and promotional materials such as brochures.
It’s important to remember that there are generally higher risks associated with non-deposit investment products than with such traditional deposit products as savings and interest bearing checking accounts. Non-deposit investment products are not FDIC-insured so you could lose some of the money you invested or not gain as much profit as you expected.
Sales of non-deposit investment products on the premises of a financial institution should be conducted in a physical location distinct from the area where insured deposits are taken. The investment sales area should be distinguished from the deposit-taking area by signs or other means.
Tellers and other financial institution employees located in the deposit-taking area may not make general or specific recommendations regarding non-deposit investment products or accept orders for these products. However, these employees may refer you to an individual who is specifically designated and trained to assist you.
When shopping for a non-deposit investment product, look for one that suits your investment goals and objectives, your financial and tax status, the amount of risk you’re willing to take, and the time horizon you’ve set for your investment portfolio.
Don’t hesitate to provide the salesperson with this information. He or she needs to know about your financial objectives before recommending a product that suits you.
Sales presentations and advertisements about nondeposit investment products should not suggest or imply that any alternative insurance coverage is the same as or similar to FDIC insurance.
For example, the Securities Investor Protection Corporation, or SIPC, replaces missing stocks and other securities when a brokerage firm fails. If the investment firm holding your securities is a SIPC member, your investment account is subject to SIPC protections if the SIPC member fails. SIPC coverage is not the same as FDIC insurance protection. It does not insure against a decrease in value of a particular invesment or when an individual is sold worthless stocks or other securities.
How to Protect Yourself
- Never invest in a product that you don’t understand.
- Be sure you have enough information before making an investment. Ask questions until you are satisfied.
- Understand the risks involved in your investment. Investments always entail some degree of risk.
- Know who is investing your money—does the salesperson work for the bank or a third-party broker/dealer?
- Select a sales representative who understands your financial objectives by interviewing two or three to compare experience, education, and professional background.
How to File a Complaint
Try to resolve your complaint directly with an officer of the bank before involving an outside agency. Financial institutions value their customers and most will be helpful. If you are unable to resolve the matter with the financial institution, use the following guidelines to determine where to direct your complaint.