High-Rate CDs Might Not Deliver What You Expect.

BEWARE, beware, of financial firms selling high-rate certificates of deposit.

I don't mean banks, I mean brokers. They're advertising terrific deals, on what seem to be one-year CDs. In fact, these CDs may not mature for 20 or 30 years.

I'm especially worried about older savers. Agents are selling 20-year CDs to people in their 90s who think they're investing only for a single year. People in their 80s are being sold 30-year CDs.

By the time they discover the truth, it's too late to get out. You can sell the CD before maturity, but may lose 30 percent or more of your money.

The Securities and Exchange Commission has prepared a free brochure, to warn you off misleading CD sales.

"These losses are going to be a big deal in six months, when they hit everyone's radar screen," says Susan Ferris Wyderko, head of the SEC's Office of Investor Education and Assistance.

You can get the brochure from www.sec.gov (click on "investor assistance & complaints," then on "news you can use"). Or write to the SEC at P.O. Box 50234, Washington, D.C. 20091.

But what happens to all the people who don't read this column? Who's alerting them? Why isn't a regulator (or Congress) asking whether there's fair disclosure before these CDs are sold?

The business works like this:

A brokerage firm will arrange with a bank to provide a high rate of interest on bulk deposits. Agents sell pieces of these deposits to small investors. The firm may sell through stockbrokers or through independent agents.

Some of these so-called "brokered CDs" have legitimate one-year terms. The higher rate of interest is legitimate, too.

But others are really 20- to 30-year CDs. The contracts for these long-term CDs will say, in big type, "one-year noncallable" or "callable after one year." You'll think that means you can redeem it in a year, just like any other CD.

You're being fooled. What you see in big type means only that the bank can choose to redeem (or call) your certificate after a year. But most likely, it won't. Your CD's interest rate probably declines in future years, so the bank will keep the certificate in force. You cannot force the bank to redeem.

If you need cash, the broker can sell your CD to another investor. But the new investor will pay you less than the face value -- often much less.

You may think all is well, because your contract says, "no penalty for early withdrawal." What a joke. There's no penalty because an early withdrawal isn't allowed.

Investors, angry and distraught, are writing to the SEC.

Take James Buchanan, 93, of Bowling Green, Ky., a retired radio entertainer. He saw an ad from a local firm, HighMark Investments, for CDs yielding 8.25 percent in the first year.

He invested $10,000 in April 1999, intending to cash out one year later. By then he had broken his hip and needed money to help pay his bills. That's when he learned that his CD didn't mature until 2019. It was eventually sold for about $7,300- a $2,700 loss.

"My wife and I live on our savings," Mr. Buchanan says. "This is serious to me. It's highway robbery."

HighMark's president, Brian Springer, says that Buchanan knew exactly what he was getting. "It's there on the paperwork two different times, handwritten and typed," he says.

Ernest McLemore, 85, a retired independent trucker living in Valley Mills, Texas, put $100,000 into what he thought was a one-year CD from Mattson Financial Services in Waco. He, too, turned out to have a 20-year investment, at 6.5 percent.

"I was told it was federally insured, one-year noncallable," he says. "I didn't ask what that meant, because anybody knows it means a year."

McLemore insists that he wasn't shown any other terms.

His agent, Blake Mattson, didn't return several calls.

These are only two of 99 complaints that reached the SEC through June 30. And written complaints are always just the tip of the iceberg.

Unfortunately, there's not much the SEC can do. You're stuck with the contract, even though the CD's true term was disclosed only in the fine print.

Here's how to protect yourself. Before buying a CD, ask, "what's the true maturity date." And please, understand that "one-year noncallable" is a gyp.

Feds Make Case for Electronic Payments

The federal government wants to deliver more of its payments electronically. That includes Social Security and veterans' benefits, as well as other checks.

Last year, you were urged to have your benefit checks sent directly to your bank account. This year, the feds are after people who don't have accounts. Surprisingly, an who don't have accounts. Surprisingly, an estimated 9.5 percent of households were outside the mainstream financial system in 1998.

The so-called "unbanked" are mostly workers of modest means or older people living on Social Security and similar payments. They typically cash their checks at check-cashing centers, and pay their bills with money orders or cash.

The U.S. Treasury is pushing the banks to serve more lower-income people through new, low-cost electronic transfer money because it's cheaper to pay electronically than to mail paper checks. As for the unbanked, they should find ETAs cheaper than check-cashing centers.

The banks can't change any more than $3 a month. They have to allow at least four free withdrawals per month, in person or through an ATM. But ETAs aren't checking accounts; they're only for cash withdrawals. They may disappoint people who'd like to pay bills by check.

But do the banks really want to offer ETAs? Around 600 institutions, with 5,300 locations, have agreed to provide them. The Treasury will pay the banks $12.60 for each account they open, to offset the initial cost.

Still, ETAs will be only slightly profitable. Whether the unbanked even hear about these accounts will depend on whether the banks promote them, and there hasn't been much action yet.

Through June, the banks have opened only 952 accounts in the United States. For the names of local participating banks, call [phone] or check www.eta-find.gov.