At Popular Inc.'s Banco Popular branch on East 116th Street in Manhattan, a window display lights up an ad for a "Performance CD," promising guaranteed principal with the possibility for returns higher than traditional certificates of deposit.

The CD is "conservative in structure" because it's linked to stocks in the Standard & Poor's 100 Index or to "blue-chip global stocks" and insured by the FDIC, Manuel Chinea, the head of U.S. retail banking for Banco Popular, said in an e-mailed statement.

United Community Banks, Inc. in Blairsville, Georgia, pitched a so-called steepener CD in November that bets on the Treasury yield curve, or the difference between short- and long- term interest rates, according to a disclosure statement. The CD matures in 20 years.

"Structured CDs are complex financial instruments that require detailed risk disclosures and special considerations with respect to investor suitability," Michael Burke, treasurer of United Community Banks, said in an e-mail. The lender "issues and distributes its structured CDs through registered broker-dealers regulated by Finra," he said.

'Plain-Vanilla'

Most of the structured CDs sold to individual investors aren't tied to such interest-rate formulas and have shorter maturities, said Tim Bonacci of CD Funding Securities LLC in Cincinnati, who has helped about 30 banks start their own businesses to sell the investments, using a competitive bid process with the longest maturity at six years.

The vast majority have maturities of five to seven years and typically are tied to a basket of stocks, he said.

"All of our clients, many of which are regional banks, are more interested in plain-vanilla, simple market-linked structures," Bonacci said in a telephone interview.

Demand for structured CDs has increased as interest-rates on traditional deposits fall to record lows and after Congress approved a permanent expansion of FDIC coverage of bank deposits to as much as $250,000, from the $100,000 limit that had been in place since 1980. The typical one-year CD is now paying an average 0.75 percent, down from 2.65 percent at the end of 2008, according to Bankrate.com.

Raise Cash

The CDs allow banks to raise cash at rates that are on average about 20 basis points, or 0.2 percentage point, less than what they pay on Federal Home Loan Bank advances, Bonacci said. To return principal on a $1,000 CD, banks may use the money raised from an investor to buy a zero-coupon bond for $880 that returns $1,000 at maturity. The remaining $120 covers commissions and the cost of the underlying derivatives.