Information about brokered CD’s each investor needs to be aware of

As the name suggests brokered CDs are certificates of deposits that are offered by a financial intermediary. The financial advisor of the firm or a person first conducts a survey of the market to avail the best CD rates for the consumer. The brokered CD has the same basic features as the other CDs. In this case too the investor needs to keep the money deposited for a predetermined term in return for a specific interest rate. 

Features

1. When investing in brokered CDs, an investor has a wider variety of choices to choose from instead of sticking to the usual CD rate that the local bank offers. Brokered CDs have a far more exposure through different locations and therefore is advantageous in cases when the bank has lower interest rates to keep the amount of money deposited low.
2. Brokered CDs can be bought and sold, just like stocks and shares. These CDs can also be traded in the secondary market for profit earning.
3. Financial advisors, brokerage firms and consultants offer brokered CDs.
4. The cost associated with the buying of brokered CDs depends largely on the annual percentage yield. Depending on the cost that the financial consultant might charge, the annual percentage yield of a consumer differs.

Are brokered CDs costlier than other CDs?

Normal certificates of deposits do not levy additional fees to investors. Brokered certificates of deposits have additional charges levied upon the investor that will show in the annual percentage yield earned at the end of the predetermined term. The annual percentage yield depends mainly on how much the financial intermediaries want to earn from the funds. The fees charged go high if the financial consultant does all the groundwork and also selects the best certificate of deposit rates for the customer. The fees charged will be less if the financial consultant does only the shopping part while the customer handles the selection and the research part.

Risks

There are a number of risks associated with investments in brokered CDs. They are as the following-

1. Brokered CDs are linked to the markets performance. If the market fails to pay the actual value of the brokered certificate of deposits then the customer will have to sell all his CDs in the secondary market and that too at a subsidized rate.
2. The brokered certificates of deposits have additional costs attached to them that make them costlier to buy than normal certificate of deposits.
3. Only brokered CDs from recognised financial institutes are FDIC protected. In case the investor does not buy them from valid intermediaries then he might have to face monetary loss.