Everbank Launches Diversified Metals CD - Get Upside of Gold with No Risk of Loss

Everbank just wrote me with some information about their new Diversified Metals CD. It's an interesting product, especially with gold and silver hitting new highs. Today, the SPDR Gold ETF (GLD) is at 120.35, close to its 52-week high of 122.02. If you invest in an ETF like GLD, or even a mining company like Newmont Mining Corp (NEM), you risk losing principle, especially if gold comes off its hights. You don't have any of this downside risk with the Diversified Metals CD. Here's how it works:

The FDIC-insured CD allows consumers to invest in platinum, gold and silver with a $1500 minimum deposit and without the risk—i.e., if the price of metals appreciates you’ll earn a return based on the combined spot price performance of gold, silver and platinum up to 50% of your initial deposit. If there is no gain, you keep 100% of your principal deposit, guaranteed. One of the advantages of investing in precious metals is to hedge against inflation since metals can maintain their value despite political or financial world crises. Gold has been on a tear lately as the Euro begins to fall apart and the world looks at the real risk of sovereign debt default. Where do you put your money if almost every currency is backed up by huge public debt? Either into countries with strong fiscal positions - Canada, Norway, etc.- or precious metals.

The worst that happens with this CD is that you get a 0% return for the five year period. That's not a great outcome but it's not much worse than the paltry rates already being paid. The top 5-year CD rate according to BestCashCow is 3.31% APY with a minimum investment of $175,000 or 3.26% APY with a $1,500 investment (Everbank is offering the 3.26% APY CD).

I don't normally wade into "speculative investments" but because this is packaged as a CD with no risk of principal, I felt it fell with my purview.

Here are some additional details about the product:

· Minimum term – 5 years

· Funding deadline – June 24, 2010

· Pricing Method – Average of 20 quarterly pricing dates

· Fees – There are no account maintenance fees unlike money market funds

There is one big difference between this and a normal CD - the early withdrawal penalty. A normal CD usually charges a certain number of month's interest as a penalty for withdrawing funds early. Usually, it's between 6-9 months. The Diversified Metals CD says this about early withdrawal:

"Except in the event of death or adjudication of incompetence of the holder of the MarketSafe CD, you may not withdraw any part of the CD prior to maturity. If you do withdraw early, even if that is due to the death or adjudicated incompetency of the holder of the CD, you will NOT receive Principal Protection and will NOT benefit from any upside potential of the Reference Index, experiencing a loss of principal as an early withdrawal charge. Consult the Product Term Sheet and Terms and Conditions Agreements for details."

This is not a product to open if you think you need the money in the next five years. Other disadvantages include the fact that the CD caps your upside at 50% of your initial deposit and the fact that the money is illiquid for 5 years.

Still, if you think precious metals can run further and want to try to benefit in a relatively low risk way, then the Diversified Metals CD might be worth looking into.