Bank CDs vs. brokered CDs

Bank CDs vs. brokered CDs

When it comes to securing your financial future, certificates of deposit (CDs) are a popular choice for many investors. They offer a safe and relatively low-risk way to grow your savings over time. However, not all CDs are created equal. There are significant differences between bank CDs and brokered CDs that can impact your financial goals. In this article, we will explore these differences and help you decide which option is best suited for your needs.

What are bank CDs?

A bank certificate of deposit (CD) is a time-bound deposit account offered by a traditional bank or credit union. When you open a bank CD, you agree to lock in a certain amount of money for a specific period, known as the "term." In exchange for this commitment, the bank offers you a fixed interest rate, typically higher than that of a regular savings account.

Ownership and accessibility of bank CDs

One key characteristic of bank CDs is that the account holder owns them. This means that you establish a direct relationship with the bank, and the CD is held in your name. You can visit your local bank branch or apply online to open a bank CD account.

Bank CD interest rates

Bank CDs offer competitive interest rates that are determined by the issuing bank. The rates can vary widely from one bank to another and are influenced by factors like the term length and prevailing market conditions. To find the best CD rates, you often need to shop around and compare offers from different banks.

Insurance protection of bank CDs

Bank CDs typically come with a high level of protection in the form of federal deposit insurance. Deposits in bank CDs are typically insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per account holder, per institution. Similar products offered by credit unions are typically known as certificates and would be covered by National Credit Union Administration (NCUA) insurance for up to $250,000 per individual, per institution. This insurance provides peace of mind, guaranteeing that your principal and interest earnings are safe, even if the bank faces financial difficulties.

What are brokered CDs?

Brokered CDs, on the other hand, are a bit different. They are not offered directly by banks or credit unions but sold through brokerage firms or financial advisors. When you invest in a brokered CD, your funds are pooled with those of other investors and the brokerage firm acts as an intermediary, facilitating the purchase on your behalf.

Ownership and accessibility of brokered CDs

With brokered CDs, you do not have direct ownership of the CD itself. Instead, you hold a beneficial interest in the CD, which means the brokerage firm holds it on your behalf. While this may seem like a subtle distinction, it has significant implications, especially in terms of liquidity and secondary market trading, in which the CD is sold prior to maturity.

Brokered CD interest rates

Brokered CDs also offer competitive interest rates, but the rates may differ from those offered by traditional banks. Brokers have access to a wide range of CDs from various banks, so you can often find a broader selection of CD interest rates. This can be advantageous when searching for the highest possible yields. Keep in mind that there can be additional associated fees with brokered CDs.

Insurance protection of brokered CDs

FDIC insurance coverage is limited based on the institution. Similarly to how a savings platform like Raisin allows you to spread your funds across multiple insured institutions with a single account and have up to $250,000 per depositor, per institution covered, brokered CDs allow for funds to be deposited across CDs from multiple banks for increased overall protection..

Key differences between bank CDs and brokered CDs

Now that we've covered the basics of each type of CD, let's dive deeper into the main differences between bank CDs and brokered CDs.

Bank CDs
You have direct ownership of the CD, and it's held in your name.


Brokered CDs
You have a beneficial interest in the CD, which is held by the brokerage firm.
Bank CDs
They are generally less liquid, as you may incur penalties for early withdrawal, and secondary market trading is limited.


Brokered CDs
They offer more liquidity, as you can often buy and sell them on the secondary market, but this may come with market-related risks.
Bank CDs
You choose from the rates offered by the specific bank where you open the CD.


Brokered CDs
You can access a wider range of interest rates from different banks, potentially allowing you to find higher yields.
Bank CDs
They are typically insured by the FDIC, providing a high level of protection of up to $250,000 per account holder, per bank.


Brokered CDs
Insurance coverage can vary and it may be tied to the underlying bank, not the brokerage firm. Additional supplemental insurance may be offered by some brokerages.

Which type of CD is right for you?

The choice between bank CDs and brokered CDs depends on your financial goals, risk tolerance, and liquidity needs. Here are some scenarios to consider:

Choose bank CDs if:

  • Safety is a top priority: If you value the highest level of insurance protection, bank CDs backed by the FDIC can be a secure option.

  • You don't need liquidity: If you can commit your funds for the entire CD term without needing early withdrawal, bank CDs may be suitable.

  • You prefer a straightforward approach: Bank CDs offer a more direct and traditional banking experience.

Choose brokered CDs if:

  • You seek higher yields: Brokered CDs can provide access to a broader range of interest rates, potentially allowing you to earn more on your investment.

  • You want more flexibility: If you might need to access your funds before the CD matures, brokered CDs offer greater liquidity options.

  • You're comfortable with market risk: Secondary market trading of brokered CDs can expose you to market fluctuations, so you should be prepared for potential price changes.

Both bank CDs and brokered CDs have their advantages and drawbacks. Bank CDs are a solid choice for those seeking safety and simplicity, while brokered CDs offer more flexibility and access to potentially higher yields. When deciding which type of CD to invest in, carefully consider your financial objectives and risk tolerance.

It's also a good idea to consult with a financial advisor who can provide personalized guidance based on your unique circumstances. Ultimately, the choice between bank CDs and brokered CDs should align with your long-term financial goals and preferences.

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