A certificate of deposit (CD) whose interest rate is tied to the performance of a market index, such the S&P500, rather than being a fixed interest rate. In other words, its return is referenced to a variable index that may go up or down in accordance with market conditions. Principal (CD face value) is usually secured against downside risk (i.e., the risk that the index may fall instead of rising). This deposit has a fixed term (3-months, 6-months, and one year) and is issued by banks and financial institutions and marketed by brokers. An investor can select a specific rate of return formula such as a 2.5% guaranteed return plus 55% of the S&P500 increase for the specific maturity.s
It is also known as a market linked CD.
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