6.65% 12-Month Denver CD and Brokered CDs

1st Financial Services LLC is advertising in Denver a 6.65% APY 12-month CD for the first $15K of deposit. Deposits between $15K and $100K qualify for 6.45%. There's a $5K minimum deposit. The ad is available online here. The company 1st Financial Services LLC is not a bank or credit union but a financial services firm. This CD appears to be a brokered certificate of deposit.

Financial firms advertising very high yield CDs are common. I don't have much experience with this, but with such high rates being advertised, it seems worthwhile to investigate. If these are brokered CDs, it can still be good deal. A general overview of brokered CDs is provided by Justin at the About's Banking/Loans blog. Here's a description of brokered CDs from the SEC site:

Although most investors have traditionally purchased CDs through local banks, many brokerage firms and independent salespeople now offer CDs. These individuals and entities, known as "deposit brokers", can sometimes negotiate a higher rate of interest for a CD by promising to bring a certain amount of deposits to the institution. The deposit broker can then offer these "brokered CDs" to their customers.

The main risk seems to be the potential loss if you need to sell before maturity. Instead of an early withdrawal penalty, you would sell the CD in the secondary market. The value that you can sell it for may be much less than you would expect as this guy experienced. In that case, a 10-year brokered CD was purchased and it turned out it was worth much less on the secondary market.

In the case of this 6.65% Denver CD, it may be a good deal. It's only 1 year so this should reduce the chance that you will need the money and have to take a loss by selling it on the secondary market. Also, if it is being issued by a FDIC insured bank as advertised, there should be no chance of loss if you keep below the FDIC limits.

There could be other issues. How many CDs are available at this high rate? I haven't reported too much on these deals since they seem to be a sort of a bait and switch advertisement. The high rate CD gets you into the office, and you're sold on other investment products. If you have experience with these advertised CD products and these financial firms, please leave a comment about how it went.

Thanks to the commenter who mentioned this CD in the finding deals post.