How does brokered CD differ from bank CD’s?

As the name suggests, brokered CDs are all those CDs that are brokered. In such cases the financial advisor of the investor searches and studies the economy before offering CD rates that would yield higher interest returns. These are offered by financial intermediary and can also be bought from brokerage firms.

Difference between brokered CDs and bank CDs 

Brokered CD has the money deposited for a particular tenure and the investor earns an interest rate at the end of the maturity date. There are certain unique features with the strategy of brokered CD that makes it different from the other bank CDs. These differences can be summarized in the following points.

1. Bank CDs are directly bought by customers from the banks. Brokered CDs are sold to brokers by the bank and the brokers instead sell them to the customers. The banks lend out CDs to brokerage firms for selling and in return pay higher interest rates.
2. The time frame of brokered CDs is longer than that of normal bank CDs. While Bank CDs have a usual tenure of one to five years, brokered CDs have a tenure starting from fifteen and more years.
3. There are some brokered CDs that are callable. This means that a brokered CD can end up before the tenure period without attracting any penalties. Bank CDs on the other hand attract penalties if they are withdrawn before the tenure of maturity.
4. Investor’s have the option of selling as well as buying brokered CDs from the secondary market like other fixed income investments. Bank CDs cannot be bought or sold in the secondary market.
5. Brokered CDs offer higher interest rate returns than bank CDs.
6. Both the brokered as well as the bank CD are FDIC insured. But in case the bank fails, then the paper work for the recovery of brokered CD is much more complicated than bank CD. 

Shortcomings of brokered CDs 

1. Investing in brokered CD always has the risk of loosing money.
2. The repayment of broker CDs take longer period of time than other CDs.
3. Depending on the annual percentage yield that an investment might earn, the brokers charge a fee that might be very high. 

Brokered CDs act as bonds and can be a source of high income after retirement. When investing in brokered CDs one just needs to take care that he can remain invested for a longer time period. Only in this case, the investor will be able to earn gains irrespective of the market trends.