A Bull CD is a certificate of deposit whose interest rate is tied to the value of an underlying market index. In other words, the interest rate paid on the CD increases as the value of the market index increases during the life of the CD. These are also known as a Market Linked Certificate of Deposit (MLCD).


This type of CD is most often used by investors looking for a very safe investment that also gives them exposure to the stock market. The CD interest rate does not lose value if the market falls because there is a minimum rate that has to be paid or at least return of initial investment.

How Bull CDs Work

The returns of these CDs, sold by banks and investment houses, may be tied to a basket of selected stocks or a major index like the Dow Jones Industrial Average or the S&P 500.  But the returns can be linked to commodity prices, currencies, and even the Consumer Price Index (CPI), giving investors the possibility of profiting from movements in these sectors without risking their principal.The CDs are backed by the FDIC up to its current limits. (The limit was $250,000 in 2018.)  If the benchmark or index declines by the maturity date, the investor gets their principal back.

If this sounds great, hold on for the downside. There's no free lunch here. If you need to get your money before maturity, the withdrawal penalty can be substantial. Uncle Sam will make you pay ordinary income tax on these just like interest received, and you have to report and pay interest on any gains each year.

In addition, many of these investments cap how much you can make on the upside and don't allow you to participate in all the gains of the index, only a set percentage. The investments omit dividends paid by the stock indexes, an important component of total return. Some of these CDs are structured to only pay gains at the end, and that's significant because it negates the power of compounding and provides a much lower return.

The decline in interest rates that began after the 2008-2009 stock market meltdown caused nearly all issuers to withdraw new issuance of these products. However, as the Federal Reserve began to increase rates in earnest in 2017, that may change. The significant downside of these investment, however, make them most appealing to older investors who want the possibility of getting additional returns without risking their principal.