I have written many articles on structured notes on this website over the past several years and fielded a lot of questions from readers of the site about these notes. These types of investments are not FDIC insured and ordinarily require a brokerage account with an investment bank like Morgan Stanley or Merrill Lynch to access. Hence, they are not for everyone. In fact, even for the most aggressive depositors and investors, they should only make up a small part of your portfolio. But, against the indisputable backdrop of rising yields and a steepening yield curve in 2017, it is a good time to take another look at these types of notes.

The interest rate-tied structured notes that are most prevalent are ordinarily tied to US Constant Maturity Swap Rates. The prospectus underlying these notes will always identify Reuters Screen ISDAFIX1 Page as the governing measurement, but the rates can be estimated by looking at the Constant Maturity Swap (CMS) rates at the bottom of this Federal Reserve webpage; the 2-year, 5-year, 10-year or 30-year swap is the difference between those CMS rates and the 6-month rate.

Interest rate-tied structured notes come in many different forms. For example, banks can issue notes that are tied to the 3-month CMS or LIBOR that have a cap and a floor (i.e., trade between, say, 3% and 10%). Just a few years ago, they issued notes that paid a fixed rate as high as 8% so long as the 6-month LIBOR stayed between 0 and 6%. However, since the long end is likely to rise much faster than the short end of the yield curve, investors and depositors should look predominantly at two categories in 2017: those that are based directly on the 10 year CMS swap rate and those that are based on a spread between a short swap rate (either 2-year or 5-year) and the 30-year CMS swap rate times a certain multiplier (usually 4x or 5x for the 2-year CMS-based notes, and as high as 8x or 9x on the 5-year CMS-based ones). There is always a second condition that notes will not pay interest for those days where an equity indices (usually the S&P 500 or Russell 2000) falls below a barrier level. The barrier level is ordinarily 75% of where the index is trading on the day the notes are priced. These notes ordinarily have a capped maximum interest rate that they can pay (between 9 and 12%) and often guarantee payment of that interest rate for the first year. These notes are usually very long term in duration and are sometimes callable after the first year.

In a rising interest rate environment, these notes are likely to produce strong interest as determined at each reset date. For example, those notes that are geared to the 2-30 CMS spread could easily get to their maximum capped interest rate as the spread gets to (and assuming it stays above) around 2%. An interest rate around 8% to 10% will probably be a nice interest rate to make over the next few years as rates rise, especially as those in bonds begin to lose money quickly. (Likewise, however, if we were to see an inverted yield curve, even one with much higher yields across the board, these spread notes could, in fact, yield nothing).

In addition to the interest rate risk, these interest-rate structured investments are not without other real risks. We define three main risks, although there are many more.

First, there is credit risk. These notes are tied to the debt of the issuing banks and are not FDIC insured. While Morgan Stanley, Chase or Citibank are pretty good credit risks, so too was Lehman Brothers as we entered 2008. Natixis, BNP Paribas, Societe Generale, Deutsche Bank and Credit Suisse are also big issuers, and while their notes can now be acquired at a discount, you should not be a purchaser of these notes at the moment unless you recognize and understand the credit risk that you are assuming.

Second, you have liquidity risk. These notes extend out for very long periods of time, and if you (or your estate) need to get out of them, you are going to get hosed. You can often benefit, however, from the hosing of others by buying notes through your broker on the secondary market. Under any circumstance, you should recognize that you are never likely to be liquid quickly, and even if the interest rate play that you want to make materializes and your notes are callable, you could still be holding the notes in some distant interest rate environment that you cannot really foresee at the moment.

Third, you have a risk of phantom income in the form of Original Issue Discount (OID) that your broker will be required to report on your 1099 by virtue of your ownership of these notes. OID is determined largely based on the discount that the issuer sells the notes to your broker and an amortization schedule in the prospectus, and may substantially reduce the effective income of these notes in the first few years after the notes’ original issuance. In order to fully understand the effects of OID on your taxable income, you will need to read the prospectus carefully and speak with your tax advisor.

Therefore, while interest rate-tied structured notes can be an effective way to generate yield in both a rising rate environment and a steepening yield curve, they are very risky and aren’t for everyone. Even the most aggressive investors should therefore keep a portfolio that is much more skewed towards cash accounts and very short term CDs.

Note: There has recently been a large issuance of interest-rate tied structured notes that involve a return of principal of less than 100% if a second defined barrier level is breeched on the date of maturity. For the same reasons that we strongly recommend that depositors avoid all equity-linked, commodity-linked and commodity-linked structured notes, interest rate-linked notes that do not guarantee 100% of principal at maturity should be categorically avoided in all circumstances.

See the best savings rates here.

See the best CD rates here.

The newly offered EverBank 5 Year MarketSafe Treasury CD is marketed towards depositors who want to bet on the 10 year rate, currently at 2.30%, rising. The product pays no regular interest for the life of the bond, but then may pay a single interest payment in five years to be determined as the difference between the then-prevailing 10 year Treasury rate and the rate at purchase, times a multiplier of 3.3. According to EverBank’s own examples on its website, if the 10 Year Treasury is trading at 6% in 5 years (over 3.70% above its trading price today), the CD will deliver an absolute return of 11.2%.

The problem here is very clear. Interest rates are likely to go up, but not dramatically. The 10 Year Treasury is unlikely to go to 6% in five years with Chairman Janet Yellin and the entire Fed Board of Governors committed to pursuing Bernanke’s accommodative policy of the last 7 and with very little inflationary pressure. Even the most aggressive commentators don’t see it crossing 5% in the next 5 years, and some see it at about the same level it is at today.

More important, the EverBank 5 Year MarketSafe Treasury CD is an awful investment because, even with the 11.2% return that the purchaser will see only if the 10-year Treasury moves past 6%, it will still underperform the compounded return of the best current 5-year CDs over the life of the CD. With the 10 year Treasury equally likely to trade at 2% - in which case the EverBank product will give you back your principal if you hold to maturity - 5 year CD products represent far superior risk-reward scenarios.

Bottom Line: There are plenty of solid products offered by investment banks to enable the purchaser to bet on rising interest rates. This EverBank product is not one of them. Rather, it is like other EverBank so-called CD products (Emerging market currency CDs and commodity CDs) that not only push the boundaries of what is a CD, but also rely on unsuspecting depositors who do not read the fine print.

See all of the Top 5 Year CD product offerings here.

It is quite evident that every bit of extra cash of interest makes a huge difference. Selecting the best savings account can sometimes prove to be a daunting task in a market where the interest rates are finally beginning to increase.

Here a 7 tips to help you find the best option for your savings:

1. Shop around.

To identify the best bank with the most friendly interest rates, you must come out of your comfort zone and shop around. You might have had a savings account at a certain lending institution since your childhood. But, this does not imply that that particular bank is the best place to save your money when the rates are increasing.

Banks offer extremely different interest rates. It is possible to find that banks in the same geography and targeting the same market may have interest rates on similar products that are very different. One bank can offer a one percent interest rate on a certain product, while another might provide a rate of zero, and yet another might provide a rate of two percent. Additionally, keep in mind that just because a certain bank has increased its rates, it is not guaranteed that your bank will do the same.

Thus you must compare the rates among the different types of banks and other credit unions. Failure to conduct such a comparison of the rates might as well hinder your personal financial progress.

A great starting point might be the Bestcashcow.com. We enable individuals to check both local and online money market account rates, as well as yields on certificates of deposits.

Click here to check the best online rates! If you are looking to save more, check the latest cd rates!

It has been proven that most customers find it quite difficult to abandon their previous banks. This could be the moment to make the decisive move.

2. Consider bypassing the brick-and-mortar institutions.

Online banking institutions offer comparatively higher interest rates to the brick-and-mortar banks.

Most savers are always concerned with the security and safety of the online banks but you should know that these banks are always secure as long as you stay within established FDIC or NCUA limits.

The online bank accounts are insured by the Deposit Federal Insurance Corp (F.D.I.C), just like the traditional banks. Most of them are owned by big players in the financial service sector including Discover Bank, American Express Bank, and Goldman Sachs Marcus. Others include the online sub-divisions of the so-called brick-and-mortar banks.

Since banks operating online are cheaper to manage they are likely to share a part of that savings to their customers. Most of them always accept clients throughout the nation.

Older customers might be hesitant to change to online-only financial institutions, whereas younger millionaires don’t even want to be seen walking into a bank nowadays.

3. Go local.

If you want a bank that you can visit occasionally, you should definitely consider working with either a community bank or a credit union. In a rising rate environment, some such smaller institutions often increase their rates more often than the behemoths. Often, these organizations need to generate deposits much faster.

Even though the rates of these banks might be higher, on most occasions their branch network is limited. This could be a major disadvantage, especially if you are a frequent traveler who always wants to access a branch or use a fee-free card of ATM while traveling.

Yet, most credit unions are part of a network that enables individuals to conduct their banking services with any credit union that is a member and use its ATM for free.

4. Avoid at all cost bait-and-switch.

Individual banks might provide attractive interest rates in a bid to seek your attention, only to decrease them after a few months.

Financial institutions can increase or lower their respective rates on savings. But promotional or introductory rates are only meant to last for a shorter period.

You should conduct a small research and read and understand the fine print before opening a savings account.

(As a policy, BestCashCow does not list short term bait-and-switch rates or exploding rates, such as those offered by EverBank, as these are always a bad deal of the depositor).

5. Stay liquid.

Keep your cash liquid at a time when the rate is starting to increase.

The prospect of keeping your money in the savings account offers you the flexibility that a certificate of deposit cannot provide. A CD requires individuals to lock in their rate for a particular time. It could be for as short as three months or as long as several years. While CDs can always play a role in a balanced portfolio, you should be careful a large part of your portfolio to CDs if you feel that we may be entering an environment with increasing interest rates.

Most short-term CDs offer similar rates to the top paying saving accounts. Also, other CDs have even lower rates of interest. Let us assume that you purchase a one-year certificate of deposit that offers an interest rate which is the same as that of a savings account. If the rates on the savings account start rising, you will be forced to keep your money in the lower-rate CD until the end of the year. And if you withdrew the money from the CD early, so as to transfer it to a savings account, you would get penalized!

6. Put savings on autopilot.

You should look for an institution that offers a savings account that pays higher rates of interest coupled with a checking account. This way you the paycheck will be deposited into your checking account and a portion of it will be transferred automatically to your savings account.

When you first pay yourself automatically and complement it with higher rates, it makes your savings grow a little bit quicker.

7. Understand the account conditions and terms.

You must know that not each and every bank has the same conditions and terms for opening a new savings account.

Certain banks may allow opening an account with one deposit; while others might require a minimum deposit of ten thousand.

Also, you might need to keep some amount of cash in your account so as to earn interest. On the other hand, you may get a lower interest rate if you have only a few hundreds of dollars, rather than thousands, on deposit in your account.

And certain banks normally charge a service fee on a monthly basis, if you don’t keep a certain minimum amount in your account. So you should really read the account disclosures before opening an account.