Brokered CDs-What are brokered cds?
Investors want financial freedom with their investments. Investors invest in CDs because of the freedom to choose the terms and interest rates for their investments. For this reason, more and more investors are choosing to invest their money in brokered CDs. They offer a greater amount of freedom than traditional CDs do, and they offer great rates in most cases. Investors do not have to worry about the abundance of fees and stipulations that they encounter with bank CDs.
How do Brokered Certificate of Deposit CDs Work?
Brokered CDs are CDs that investors find in other financial institutions other than banks. These CDs are brokered, which means that a financial advisor surveys the market for the best rates available. Investors agree to keep the money in the financial institution for the length of the specified terms at the agreed interest rates. Brokered CDs expose investors to a wide range of locations and CD options. Instead of investors only having their bank’s rates available, they have an entire market in which to choose. The advisor does the research and notifies the investors with the findings.
Advantages of Brokered Certificate of Deposit CDs
- These CDs have liquidity. Brokered CDs come in different varieties. Investors may have the option to purchase liquid CDs in which they can withdraw money. Investors must make sure that they abide by the stipulations in the agreement at the time of purchase. Most liquid CDs have a limit on the number of withdrawals and the length of time between withdrawals.
- Brokerage CDs are flexible. The CDs can be transferred from brokerage firm to brokerage firm. These CDs may be bought, sold, or transferred, depending on the types of CDs in which the investors invest their money. Investors have the power to consolidate their assets to one brokerage firm if they choose. Investors have more flexibility with these types of CDs than the ones found at banks and credit unions.
- They offer competitive market rates. These CDs are hot commodities. Brokerage CDs can offer competitive rates that traditional banks and credit unions cannot afford to offer. Brokers can get the CDs at rates that are less than the market value so they can afford to sell them at better rates as well.
- They provide investors a great deal of freedom. Investors are not locked into the few rates that their banks and credit unions offer. Investors can not only purchase and sell CDs but they can also gain exposure to a variety of great rates.
- They are tradable in the secondary market. Brokers use the secondary market to find CDs to buy and sell for clients. The rates vary since investors are trying to get rid of them. The secondary market is very popular but there is not always an abundance of CDs available. Investors must be willing to act fast on these investment opportunities.
Disadvantages of Brokered Certificate of Deposit CD
- They are a huge market risk. Investors may have to sell their CDs on the secondary market for less than they paid for the CDs. They may have to accept the loss of some of their money in order to get rid of the brokered CDs.
- Investors can lose money. If the financial institutions that own the CDs are not FDIC insured, investors may loss all of their money. This loss can be particularly hard for someone with money invested in Jumbo CDs. Investors must make sure not to purchase CDs not insured by the FDIC.
- Brokers charge investors fees for their services. This service is not free. Investors must be willing to pay them fees for their services. These fees are in addition to the amount of money that investors invest into brokered CDs.
- They sometimes require large orders. Brokered CDs may require orders of $1,000 or higher for the investment. Brokers purchase the CDs for the investors. Investors may not have the option to purchase small CD amounts with brokered CDs.
- There is a limited supply. Brokerage firm options vary from day to day. The supply is limited so it is hard to determine what will be available from day to day.
Investing in CDs can be very tricky. Having a financial advisor that handles the research and purchase of CDs makes investors’ jobs a little easier. Investors must make sure that they ask many questions to determine if these investments are in their best interest. Brokered CDs can be a great investment.