The Basics of Brokered CDs

Brokered CDs are a type of investment that many individuals choose to pursue at some point. While they share many characteristics with traditional CDs, there are a few subtle differences that you should know about. Here are the basics of brokered CDs.

Brokered CDs

When you invest in a brokered CD, you are still depositing your money with a bank. However, with a brokered CD, you are working with a financial professional such as a broker. Your broker will go out into the market and search through many different offerings to determine what the best rates in the market are. They will be able to find you a CD that matches the individual investment goals that you have.

Safety

Investing in a brokered CD is one of the safest types of investments available. With this type of investment, your money is insured with the FDIC. This means that if the bank that issues a CD goes under, the FDIC will step in and reimburse you for your investment. Any amount that is up to $100,000 will be reimbursed by the FDIC. This will allow you to invest up to $100,000 with several different banks and your money will be completely safe. For those that are scared of investing in the stock market, brokered CDs provide you with a way to bring in a return on your investment without taking on any risk.

Investment Time Period

By working with a broker to find a CD, you will be able to find one with the perfect time horizon for your investment objectives. CDs come with many different maturation dates. You can find some that have terms as short as 3 months. You can also find CD that have terms as long as several years. By shopping all of the CD offers that are available in the market, you will be able to find one that is perfect for how long you plan on investing.

Interest

By pursuing brokered CDs, you will be able to get a better interest rate than you would if you simply purchased a CD from your local bank. You will be able to scour the market for all of the latest CD quotes. Even if you only earn an additional fraction of a percent, you will be able to bring in more of a return on your investment. When you start working with larger amounts of money, this can make a big difference.

Costs

In exchange for helping you find brokered CDs, your intermediary is going to most likely charge you a nominal fee. This fee will help compensate them for their time in searching for the perfect CD for you. In most cases, this charge will not be very significant and it will be a one-time fee.

Trading

One of the big differences between traditional CDs and brokered CDs is that you can trade brokered CDs on the secondary market. These will trade at a premium or discount depending on the interest rates that are available in the market.

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