As I mentioned in the first part of this series on the time tested bank CD, investors need to be aware of the pitfalls and benefits of new CD options that banks are coming up with in order to get investors interested in this ‘guaranteed’ investment.

One way banks are luring clients into the CD craze is by offering what is known as a ‘callable’ CD. These CD’s give investors an initial term that is long – five or more years for the most part. However, the bank reserves the right to ‘call’ the CD – basically this means they can shorten the term of the CD at will. In exchange, investors typically receive a higher interest rate. Many banks offer callable CD’s, including Countrywide Financial, Lehman Brothers and the Royal Bank of Scotland.

If you’re thinking this sounds like a good investment option for you, then consider that if rates continue to drop or if they remain the same, banks will often call the CD’s and you will have to reinvest your money at a lower rate. On the flip side, if rates rise, banks typically won’t call the CD’s and you’ll be stuck with them for the entire (did I mention long) term.As you can see, financial planning that includes callable CD’s is quite difficult. For example, it is difficult to fit them into bond ladders because you can’t accurately predict how long you’ll own the CD. In addition, it often will wind up that you get the raw end of the deal no matter which option the bank chooses, so think long and hard before investing in a callable CD.