What are brokered CD’s and their features?

These CD’s, as the name suggests, are brokered which means they are offered through a financial intermediary.  In order to get a better understanding one needs to know how to buy, from whom to buy, and how you are paying for these CD’s, as well as what are the things to watch out for.  Given below are some of these basic facts that one has to bear in mind.

Brokered CD’s are normally purchased through a financial intermediary, where the financial advisor does a basic survey of the market to arrive at the CD’s with the best features.  As is the case with CD’s here also the money is invested for a particular period and the issuer pay a certain rate of interest.

Features of brokered CD’s:

There are some featured that are unique in a brokered CD.  Firstly, one has a wide range of banks to choose from instead of walking into a particular bank to purchase a CD where the banks would offer only their own.  In case of brokered CD’s there is a lot of exposure to CD’s from various locations.  This can be advantageous especially in cases where the local banks are keeping their interest rates low in order to avoid taking in more deposits.

One can buy and sell brokered CD’s just like any other investment with fixed income.  These are normally in limited supply and there could be a order size with the minimum being maybe $10,000.  Brokered CD’s could be traded in the secondary market if required although there isn’t much in terms of volume.

How to get one?

These brokered CD’s can be purchased through brokers, financial advisors, financial planners or consultants.  In fact anyone who has knowledge of shopping for securities could find a suitable brokered CD and they might charge a small fee.

Cost factor:

While banks don’t normally charge the investor a fee to invest in their CD, brokered CD’s will add costs which will typically come out in the annual percentage yield that is earned on the investment.  However, the APY would depend on the amount that the intermediaries wish to earn on the deal.  Sometimes fees are charged as ‘assets under management’ and it might be worthwhile as the financial advisor does all the necessary work for you which includes research, shopping for interest rates, renewals etc.  But one must certainly be aware of the fees that they are expected to pay.

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