Investment CDs can be pretty confusing if you are new to the market. There are so many rules, limitations, and options for the investor. There’s high yield CDs, risk-free CDs, maturity CDs, and CDs with callable features. Especially in today’s financial market, it takes a lot research to compare current certificates of deposit, find the best interest rates, and make the best safe investing choices for your money. In the article below, we take a closer look at the difference between bank CDs and brokerage CDs.
First off, an investment CD can be found through a banking institution or brokerage firm. A standard CD works comparable to a savings account, but with limitations. The investor brings a fixed amount of money or principal to a bank or brokerage firm. The CD that the money is put into has a certain interest rates, maturity date, and sometimes callable features. Depending on the limitations of the specific CD , the CD will offer different interest rates and withdrawal terms; but the one stipulation with CDs (as opposed to most savings accounts) is that the money in the CD be untouched until a certain date-6 months, 1 year, 5 years, etc-called the maturity date. This kind of CD is most commonly associated with a CD proffered through a bank or bank CD.
Brokerage or brokered investment CDs are similar to regular bank CDs , but come with a few differences. First off, a brokerage CD is typically found through not a bank, but a specialized third party-such as a financial adviser, broker, consultants, and planners. These third parties take out all the financial research and CD rates legwork for the investor, by finding the best CD rates and CD options for their client. Another difference is that-as you might guess-the broker’s third party fee for doing this legwork-usually called the Annual Percentage Yield. Moreover, there could be a broker fee associated with buying brokered CDs . Lastly, depending on the scale of your third party financial help and the services you acquire them for, you could also be paying a brokerage firm fee at either a flat rate or percentage of CDs invested into.
It really all depends on how much money you have to invest, what your financial priorities are, and how much time you have to sit on your investments. With investing on your own with bank CDs , you save the costly fess associated with a big financial planning or brokerage firm; however, with a brokerage firm, you save time and effort by allowing a financial specialist to find you the best CD rates with the high yield or safe investing results that you are looking for. Moreover, with brokered CDs , you’ll find a lot more options as far as types of CDs -meaning different sources, CD rates, etc-and typically, the CD firms that your broker works with are all competing for your investment.
Whatever you opt for, make sure that you do your research. If you have looked around briefly at the world of financial planning and investing, and find that it will take more time or effort than you have; then make sure that you spend some time researching reputable brokerage or financial consultant firms. As always, it is best to start with word of mouth, and from there, research what other customers say, check out the Better Business Bureau, etc. Remember that no matter how little time you have, you have to be vigilant when placing your money in anyone’s hand, be it bank or broker.
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