Financial Intel Monthly

Face Amount Certificate

Jul 31, 2020 7:15:00 AM / by The Retirement Group (800) 900-5867

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What Is It?

Face amount certificates are issued by a face amount certificate company (a type of investment company) or by an insurance company. Face amount certificates offer a predetermined rate of interest. The issuer is obligated to pay a stated (or determinable) sum or sums at a fixed (or determinable) date or dates more than 24 months after the date of issuance in return for your payment of a specified amount. Although you can make a lump-sum payment for a face amount certificate, they are most often purchased through periodic installments. As a face amount certificate holder, you are entitled to redeem your certificate either at maturity for the face amount or before maturity for the surrender value.


Higher Interest Rates than Other Cash Alternatives

Because face amount certificates cause your money to be tied up for a period of time, they tend to pay higher interest rates than savings accounts, checking accounts, or short-term certificates of deposit.

Can Be Purchased In Installments

One advantage of face amount certificates is that they can often be paid for in installments rather than a single lump sum. This is useful if you want to use periodic investments to build assets.

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Not As Liquid As Other Cash Alternatives

Although you may redeem your certificates either at maturity for the face amount or before maturity for the surrender value, they are not as liquid as savings accounts, checking accounts, and domestic bank certificates of deposit.

Not FDIC Insured

Face amount certificates are not insured by the Federal Deposit Insurance Corporation. You must rely on the issuing company's promise to pay you.

Tax Considerations

Face amount certificates are considered a form of endowment contract for taxation purposes. They are subject to the Original Issue Discount (OID) rules because the maturity is longer than a year and interest is paid. Under the OID rules, all or a portion of the imputed interest is taxed on an accrual basis. You must recognize a portion of the interest income currently, even if you have not yet received it. In general, the difference between the face amount and the amount you paid for the contract is considered OID. You must include a part of the OID in your income over the term of the certificate. The issuer must give you a statement on Form 1099-OID indicating the amount you must include in your income each year.



This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.


The Retirement Group is not affiliated with nor endorsed by,,,,, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.


The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at

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