What are Brokered CDs? This is a question many investors are asking in their quest to obtain the maximum amount of earnings through this conservative type of investment. As the name suggests, a brokered CD is purchased through a broker or third party other than a bank or credit union.
With a typical CD that is purchased through a financial institution, the stated CD rates for that establishment are all that is available at that place of business. With a brokered CD, the investor has a variety of choices from many different financial institutions that your broker is currently handling. Unlike bank issued CDs, the brokered CD can be bought and sold on a secondary market before their maturity term has expired.
The CDs purchased through a broker do allow for a wider variety, but as an individual you can go to these financial institutions and make the same purchase without having to pay the broker’s fee. This is now possible through the online websites of most financial institutions.
The ideal situation is when a broker has negotiated a better than advertised rate with a financial institution that includes a large sum of money for an extended period of time. They then break this CD into smaller CDs and sell them to numerous investors. If these brokered CDs need to be sold before their maturity dates, this is done on the secondary market where the value is generally lower than the face value.
If you decide to purchase a brokered CD, have your broker give you examples of CDs on this secondary market for the best possible deal. Also, look into the rating of the financial institution that is issuing the CD. If the establishment has a rating below 4 stars, selling the CD will be at a discount because of the conceived higher risk.
What are brokered CDs is that they are another mechanism for investment by individuals and businesses to earn a profit. Before placing a deposit in one, please read all the fine print and know the reputation of the broker. This could save you from losing part of your principal.
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