Benefits and Risks of Brokered CDs vs Bank CDs - Best Certificate of Deposits Today

Описание: Brokered CDs have a couple advantages compared to CDs set up at a local bank:

First, the interest rates are generally much more competitive. Brokered CDs come from banks across the country, and allow you to very easily shop CD rates from banks everywhere. It is highly unlikely that your local bank is offering the best rates in the country, so almost everyone can see an increase in the rates available to them by looing at brokered CDs.

Next, they are much easier to administer. Opening accounts at local banks means making trips across town, opening multiple accounts, and perhaps having to open accounts at multiple different banks to stay within the FDIC protection limit.

Brokered CDs can be purchased in your current IRA, Roth IRA, or brokerage account – There’s no need to open up new accounts all over the place. And, you can very easily just purchase CDs from different banks within your one brokerage account and keep everything under FDIC protection.
Lastly, brokered CDs generally have much less fees to break, or get your money back early, if needed. Banks will typically charge 3 months of interest as an early redemption penalty. For a $100,000 CD with 5% interest, this could mean $1,250 in penalties! Brokered CDs typically have a fee of $1 per $1,000 in value, with a maximum fee of $250.

However, there are risks associated with brokered CDs. And one is related to needing to sell before maturity. If you need to get your money back from a brokered CD, you must find someone willing to buy it. Your broker will help you do this, but it may not be instantaneous and you may have to sell it for less than you originally paid for the CD. You can lose principal in brokered CDs if you need to sell early.

Lastly, many brokered CDs are callable, which just means the bank can buy back your CD. Be sure to look for non-callable CDs if you want to be sure you are locking in your interest rate for the life of your CD.

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