Brokered CD Introduction
Nowadays it is possible to buy CDs from a financial intermediary and these CDs are referred to as brokered CDs. When you choose a brokered CD, the broker looks around for the CD rate best for you. The brokered CD is similar to other CDs where you deposit an amount of money for a fixed period of time, on agreeing to the bank paying you an interest. However the difference between a brokered CD and a normal CD is that you get exposed to numerous locations to invest your money in. This approach is better if the banks around you don’t try to rake more clients and CDs by keeping rates lower.
Brokered CDs can be bought and sold just like you do other investments; and there is the other infamous option of trading it on the secondary. Brokered CDs are easily available from financial advisors, consultants, brokers and planners.
There are no major costs for a CD as the financial institution does not charge you for a CD investment. However you are paid an interest depending on the Annual Percentage Yield (APY) of the CD. There are some brokers who may charge for their services of buying you a CD. It could be either a fixed fee or something that is charged against the amount that is invested. It is up to you to decide if it is worth investing in the CD by calculating the costs that you would otherwise face while doing some research work for the CD.
The risk associated with a brokered CD is the market risk where you end up selling the CD for a lower price. CDs are usually kept till its maturity; but at times when you are in need of money you have no option but to sell the CD. In such cases, the buyer does not actually opt to pay its face value. The other associated risk with brokered CD is that you may end up losing your money as the issuing bank may not be safe and insured.
Though you are offered better interest rates with brokered CDs, you have a larger risk with this option. It is basically better not to take risks when investing in a CD and this can be done by ensuring that the bank you deal with is registered and insured. With some care and forethought, the risky brokered CD can be a very profitable option for you.