Goldman Sachs Offers Its First CD Tied to Both Stocks, Rates

Goldman Sachs Group Inc. (GS) is offering a certificate of deposit that pays a fixed return when two measures fall within certain ranges, the bank’s first such offering in a market where record-low yields are driving demand.

The so-called “range accrual” 15-year CD yields 5 percent annually when the London interbank offered rate is from 0 to 6 percent, and the Standard & Poor’s 500 Index exceeds 80 percent of its initial value, according to a preliminary disclosure document. New York-based Goldman started offering market-linked, or structured, CDs in December.

Sales of the products in the U.S. reached a record last year as the Federal Reserve held interest rates near zero for a third year. The deposits, which combine debt with derivatives, return principal at maturity and offer the opportunity for higher gains than with typical fixed-rate CDs.

Tiffany Galvin, a spokeswoman for Goldman, declined to comment.

Most investors will have difficulty determining whether the 5 percent on the Goldman CD is a good payout for the underlying bet, said Michael Davis, a partner at Varick Asset Management in New York.

“For the near term, you’ll likely get 5 percent, but five years from now, that might be year one of 10 years of no coupon,” Davis, who sold structured products while at Lehman Brothers Holdings Inc., said in a telephone interview today.

7 Percent Fee

The product, which is callable, is Goldman’s first CD tied to both rates and equities, according to a person with knowledge of the offering who declined to be identified because terms aren’t set. The total fee will be about 7 percent, or 4 percent for distribution and a 3 percent hedging fee, the person said.

Banks sold a record 1,271 of structured CDs in the U.S. last year, according to, a database used by the industry. Rates on five-year, fixed-rate CDs have fallen to 1.49 percent, the lowest level since at least June 1998, according to data from That compares with 4.4 percent in December 2007 at the start of the worst recession since the 1930s.

Derivatives are contracts whose value is derived from stocks, bonds, currencies and commodities. The London interbank offered rate, or Libor, is the rate at which banks say they can borrow in dollars from each other.

To contact the reporter on this story: Matt Robinson in New York at

To contact the editor responsible for this story: Alan Goldstein at

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