June 2, 2020

Understanding Brokered CDs

Understanding Brokered CDsWhile an investor may be familiar with a CD as an investment, they may not be familiar with a brokered CD. A brokered CD is an investment option offered by a financial intermediary. When considering this investment option, it is important to understand what they are, how to purchase them and what considerations to have to create the best investment situation possible.

One thing to understand about a brokered CD is that they are brokered by financial professionals, meaning that the professional is searching the investment landscape for the best CD rates possible for investors. They are similar in concept to a CD that would be purchased at a bank, as they will pay a certain interest rate for the money deposited during the specified investment time period.

Features of a Brokered CD

There are some unique characteristics to become familiar with in regards to a brokered CD, including:

  • Investing into a brokered CD is an effective way to open up the selection field to a larger selection of issuing banks. For investors searching for the best rate on their own, this can cut down the time spent visiting local banking institutions or the personal time that it would take to search for CD rates online.
  • As brokered CDs are more similar to other fixed investment types and are in less supply than a traditional bank CD, the minimum purchase amount is often greater than the common $1,000 minimum that is often seen in a bank.
  • While there is not a great deal of trading volume, brokered CDs can actually be traded in the secondary market. In some cases, this can allow for some flexibility in exiting the investment.

Buying Brokered CDs

If you are interested in brokered CDs for your investment portfolio, you are likely wondering where you may find them. You can locate brokered CDs through financial advisors or brokers in your area as well as financial planners or financial consultants. There is a wide variety of options available to purchase brokered CDs. When you select a professional to work with, be sure to interview several in order to find one that is best suitable for your personal and financial objectives.

Brokered CD Fees

Both traditional and brokered CDs have associated fees, generally taken out of the interest rate offered to the investor. While in most cases there is not a separate or up front fee for purchasing a brokered CD, there are some instances in which there may be an account fee associated with the method to purchase the brokered CDs. Be sure to inquire with the financial institution that you are purchasing the brokered CDs from if there are any applicable fees or charges so that you are not caught off guard if you notice anything on your financial statement.

Brokered CD Risk

 

Brokered CD RiskThe most significant investment risk associated with brokered CDs is that of market risk, as the supply and demand factors of the economy can affect returns. However, this risk only applies if the investor chooses not to hold their investment until its maturity and is forced to sell it in the secondary market.

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For other information on CD Investing Visit these sources:

The Securities and Exchange Commission
The Federal Trade Commission

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