Answers about Index-linked Certificates of Deposit

Will I receive periodic interest payments on my index-linked Certificate of Deposit (CD)? Are these payments taxable?

Unlike traditional CDs, periodic interest payments are typically not paid. However, investors are required to include a "comparable yield" in their gross income each year for federal income tax purposes even though no cash payments may be made to the investor on these CDs until maturity.  By purchasing an index-linked CD in an IRA or other tax-advantaged account, an investor may avoid reporting comparable yield income each year on their taxes.

March 2010