27 Jun What are brokered CDs?
Q. What are brokered CDs?
A. Brokered CDs — Certificates of Deposit —are simply CDs offered by a financial intermediary.
This means that a person — such as a financial advisor — surveys the marketplace to find the best CD rates available.
You agree to keep your money deposited for a specified term, and a bank agrees to pay you a certain amount of interest, said Bill Connington of Connington Wealth Management in Fairfield.
He said you’ll find a few things that are unique to brokered CDs.
“First, you open up your investment choices to a wide universe of banks,” he said. “If you use brokered CDs, you’ll likely be exposed to CDs from a variety of locations.”
Connington said you actually buy and sell brokered CDs much like other fixed-income investments. There is typically a limited supply, and there may be a minimum required order size, such as $10,000.
Typically, your “cost” comes out in the Annual Percentage Yield (APY) that you earn on your money, he said.
A major risk of brokered CDs is market risk.
“This is the risk that you’ll sell your CD in the secondary market for less than you paid. Ideally, you’ll keep your CDs until maturity and eliminate this risk,” Connington said. “Another risk of brokered CDs is the risk that you’ll actually lose your money.”
He said you should make sure that any issuing banks are safe and FDIC-insured.
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This post was first published in June 2017.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.