CD’s come in all sorts of forms. There are Callable CDs, Regular CDs, and now Brokered CDs. They all fundamentally work the same, however each of them entails their own risks and rewards that may help you diversify your investment portfolio. A Certificate of Deposit (CD) is a deposit of money to a financial institution that gains interest for a set period of time ranging from 1 month to even 5 years! We wrote a post about Callable CD’s, now we are going to introduce you to Brokered CD’s!
Editor’s Note: If you’re interested in finding a broker, be sure to view our full list of the Best Brokerage Deals and Promotions!
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What are Brokered CD’s?
Broker CD’s are certificate of deposits (CD) that are purchased through a brokerage firm or from other representatives. The original issuer/bank is still the owner of the CD, however they have gone to third party institutions like brokers to assist in finding investors that want to buy CD’s. These types of CD’s are typically more expensive and competitive. Like any CD, at the end of maturity date, the investor will be paid the principal they paid and the interest it had accrued. Brokered CD’s work a little bit differently, as they can be traded and carry much more risk!
Where Can You Buy a Brokered CD?
Any person that is able to shop for securities can most likely be able to buy you a brokered CD. These people can be financial advisers and financial consultants.
Why Would You Buy a Brokered CD?
You may want a brokered CD, if you’re interested in trading in a secondary market for possible profits.
Costs of a Brokered CD
Some intermediaries/brokers will charge a fee to manage the CD’s that can range from a flat amount or the amount of dollars that is being managed. Purchasing a brokered CD opens up your market to multiple banks rather than just one by purchasing a regular CD. This means that you have more rates and banks to choose from.
What are the Risks of Brokered CD’s?
The main risk to worry about is the market risk. It is possible to sell the CD on the market for less than you made. The best way to get a return is to wait for your CD’s to grow into maturity and eliminate the risk of selling the CD for less than it is worth. If you have to sell it for less than it is worth, then sometimes there is no choice to accept the lost in profit.
Questions to Ask About a Brokered CD
You should ask these questions before getting into a Brokered CD:
- Is this Brokered CD insured by FDIC or a security?
- What bank is issuing this CD?
- Is there a fee to buy one?
- When is the CD’s maturity date?
- What are the penalties for cashing in before maturity?
- What is the interest rate on the CD?
- Is my rate going to be fixed or variable? If it is varied, what and when will make it change?
CD’s are a bit more complicated than just a principal and an interest being paid to you. There is a whole business and world that can help diversify your investments. One of these ways is a brokered CD. Brokered CD’s are purchased through some type of representative that trades securities. They are used to widen your market and allow you to purchase from multiple different banks! Selling a brokered CD can lead to profit, but a great way to ensure profits is to allow the CD to reach full maturity. Before buying a brokered CD, be sure to ask the questions above and other that you think of before purchasing one! If you’re interested in purchasing a CD Account, be sure to look at our full list of the best CD Rates and Accounts!