Brokerage Certificate of Deposits

brokerage cdsBrokerage certificate of deposits differ from traditional Bank CDs because they are offered by a broker (a middleman) not directly from a bank. Brokers can include investment banks and financial institutions like Charles Schwab or Fidelity. 

CD brokers usually purchase CDs in large denominations and resell them to customers in smaller amounts. Just like traditional certificate of deposits purchased from banks, brokerage certificate of deposits are FDIC insured for up to $250,000 for individual accounts and $500,000 for joint accounts.

The difference between traditional bank CDs and brokerage CDs is the brokerage CDs are tradable like stocks or bonds. Why would one want to trade a CD? To access their funds without paying an early withdrawal penalty like you would with bank CDs.  

A brokerage CD will return an investor's principal at maturity, its value if sold prior to maturity will fluctuate based on size, time remaining before maturity and the level of interest rates. If you sell before maturity your broker will request bids and contact you with the highest bid for you CD. You will also receive any accrued interest up to the sale date.

Another benefit is a brokerage CD can be transferred from one brokerage firm to another, which allows the owner to consolidate assets at one firm.

Bloomberg recently reported CD rates are going up.

Author: Brian McKay
November 12th, 2008