Understanding Brokered CDs

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What are brokered CDs?

Understanding Brokered CDs

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).

   

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