Things to know about brokered certificates of deposits

Brokered certificates are those that can be resold before the maturity date. That is you can retain the liquidity of your investment by selling whenever you need to. But to this, you will have to find a buyer first.

There are a number of benefits of going for a brokered certificate of deposit. some times, a certificate will be given out to brokers after negotiations. During such negotiations, if a broker has promised a bank that he will get in a certain amount of deposit, then he would have been offered a higher rate of interest. If you are getting a certificate through a broker, then ensure that you get a better rate than what the bank is offering you. Popular opinion would be that a brokered certificate should in fact cost more but this is not the case. you must ensure that you get a better deal than a bank if you go through external agents.

Brokered certificates are usually held by a large group of investors. Each one of the investor will own just a small portion of the certificate. You have to ensure that the amount you have deposited exactly reflects on the portion of the interest amount that you are eligible for. Always confirm how your certificate is held with the broker and ask for the original titles of the certificate. You need to make sure the broker is just acting as an agent and not a shareholder to the certificate. This is the only way that you can get the maximum out of your investment. The broker should be able to make his money only through the incentive that the bank provides him and not at your cost. It will also ensure that your certificate qualifies for the $100000 FDIC or federal deposit insurance corporation coverage. If this is the case then you will not have to worry about any adverse scenario that might affect the rates of your certificate as it will be guaranteed by the FDIC.

After this, ensure that the broker is reliable and has a good track record. The best way to get a good broker is through references. This is very crucial because brokers will not go through any formal certification or licensing procedures. They are not organized by any government sector organization. Hence it becomes very important for you to verify their credentials. There are a lot of unscrupulous elements who might be out to make a quick buck these days. You do not want to let your hard earned money fall into the hands of such individuals.

Also remember to enquire about prepayment penalties. If you wish to withdraw your deposit before it matures, then you will have to pay a penalty to the bank. But if the broker has promised that you can retain the liquidity of your money, this means that he will try to resell it to someone else. If the interest rate of the deposit has increased, then he will be able to sell it easily for a profit whereas if the interest rate has fallen, it will be difficult for him to resell it at the same cost. Thus he might ask for a penalty amount to be paid. Enquire as to how much this penalty amount would be.