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When you compare CD rates, don't forget to look at the rates of brokered CDs. As you might guess. brokered CDs are CDs that are sold through a broker. They may be from banks that you don't have access to because they do not have branch availability in your area. When you buy a brokered CD, you'll pay a fee to the broker who facilitates the purchase. This fee is usually reflected in a lower annual yield.
Sometimes, you can buy brokered CDs on the secondary market. The secondary market is much like the stock market--it's simply a place where you buy CDs from other investors rather than from the financial institution itself. Much like bonds, brokered CDs on the secondary market can be bought or sold at a premium or at a discount, depending on how the yield compares to new issues. When you buy a brokered CD at a premium, it means you're buying it for a higher price than the principal. This effectively lowers the yield. When you buy at a discount, you're paying less than the principal, which increases your yield. Just like regular CDs, brokered CDs are FDIC insured up to $100,000 ($250,000 until 2013).
|Jennifer Mathes, Ph.D.|