Chase Manhattan Offering Stock Market-Indexed CD
NEW YORK (AP) _ Muscling its way further into the retail securities market, Chase Manhattan Bank said Wednesday it was offering a deposit account paying interest based on the performance of the stock market.
The so-called Market Index Investment, the first of its kind, essentially is a certificate of deposit with interest based on changes in the Standard & Poor’s 500 stock index over the term of the certificate.
Chase officials said they hoped to attract customers who liked the safety of a CD, but also wanted the higher potential returns of the stock market.
Banks in recent years have been pressing regulators for the power to offer certain securities investments, such as mutual funds. Legislation broadening banking powers in such areas is pending in Congress, but in the past several sessions has failed to win final passage.
Banks have limited retail securities powers, such as being able to offer discount brokerage services, but may not offer their own mutual funds or give investment advice.
Interest on the Market Index Investment, available for a minimum deposit of $1,000, is calculated at a percentage of the increase in the S&P 500 during the term of the certificate. Depositors also can opt for a guaranteed minimum interest rate, and there is a stiff penalty for early withdrawal.
The bank also guarantees the principal, meaning that if the stock market falls the original deposit will not drop in value along with it.
For example, a customer buying a one year certificate could choose a guaranteed return, meaning they would get 4 percent interest or interest at 40 percent of any gain in the S&P, whichever was higher. Those opting for no guaranteed return would get interest at 75 percent of any gain in the S&P or zero interest if the index fell.
Deposits in the Market Index Investment are insured up to $100,000 by the Federal Deposit Insurance Corp.
Robert R. Douglass, Chase vice chairman, told a news conference that along with regular CD customers, the bank hoped to attract some of the investors in the $700 billion mutual fund market who might seek protection against stock market declines.
Douglass also said Chase hoped the new product would increase demand for reform of laws prohibiting banks from offering mutual funds and other securities.