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Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Occasional Brokered CD Rate Deals

In many of our past articles on brokered CDs, readers have commented that the CDs offered through their brokerage firms had rates lower than what they could get by buying them directly at banks or credit unions. However, a reader commented on Friday about one recent exception. Vanguard Brokerage has been offering new issue brokered CDs from Goldman Sachs Bank with a 3.00% rate and a 10-year term. This currently tops the best CD rate that you can get directly from a major bank. That best rate is 2.45% APY for a 10-year CD at Discover Bank (2.50% APY for AAA members). It also tops the best CD rate that you can get directly from an all-access credit union (2.75% APY for a 7-year CD at Pentagon Federal Credit Union). These rates are accurate as of 1/30/2012.

You can see a summary of the most recent brokered CD rates at Vanguards Bonds & CDs page. Unfortunately, the shorter terms are currently not as competitive as the 10-year CD rate. For example, the 1-year CD rate is only 0.40%, and the 5-year CD rate is only 1.75%.

The new issue brokered CD rates listed at Vanguard are currently higher than those listed at Fidelity. To see the latest rates at Fidelity, go to the Fidelity CD page and click on the "See new issue CDs" link at the top of the right menu. There is one brokered CD listed with a 3.00% rate, but it has a 16-year term and it's a callable CD.

Vanguard has a summary of its brokered CDs in this CD information page.

I reviewed the pros and cons of brokered CDs in my post Brokerage Certificates of Deposit and IRAs. One important downside to brokered CDs is that you have to sell it on the secondary market if you need the money before maturity. You could lose a significant amount of principal if you have to sell it. You typically would lose more if interest rates are rising. However, as I described in that post, you can lose money even if you sell the CD when interest rates are falling.

All of the CDs offered by Vanguard Brokerage and Fidelity are FDIC-insured. However, it's important to understand that if you purchase a CD at a premium on the secondary market, the amount of the premium is not FDIC insured.


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Comments
14 Comments.
Comment #1 by Anonymous posted on
Anonymous
 

No matter where you look for CD, no matter how you looked at, no matter how you analyzed it, the consumers are the losers.

Just go to sleep and when you wake up in few years, we may see some upward move in the CD rates, until then, just count your loses and don't expect much.

3
Comment #3 by Anony/Paoli (anonymous) posted on
Anony/Paoli
Creeps!!  Hell Hitler!!!  Why are we ALL getting blamed for the destruction certain bad politicians are doing to our country?  You don't save a country by sitting on the internet ****ing!  WHERE is our PETITION, Ken? These people are ripe to revolt but too old to take to the streets.  Give them a Petition to sign, at least!  What are we waiting for?  I am getting older by the minute.  I would like to sign it before I fly off into the Heavens or maybe get dumped into Hell!  Sorry for the foul language folks but this waiting is getting to me!

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Comment #4 by Anonymous posted on
Anonymous
Ken......When will you have info and numbers on Treasury I-Bonds for this coming May? Those posts are sure helpful and it's great to know early if they will be a good investment. Thanks!!

1
Comment #5 by Over6T posted on
Over6T
While I generally agree with portions of the rants mentioned earlier, it appears to me that these comments may be misplaced.  Ken does and excellent job in providing information about deposit accounts; one of the few unbiased sources of information on the internet.  All I want from this site is objective honest facts, that are not skewed by political views.  I don't believe this website, blog or foum is a proper platform for political advocacy.

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Comment #6 by Anonymous posted on
Anonymous
No. 2 is simply venting.   None of us know his/her personal situation.  None of the politicians give a hoot about us.   At least here, in the blog, we can vent our frustrations as well as add or get advice on earning a little bit of of interest on our savings.  I'm on the site practically every day.   Sometimes I don't have anything to add re interest rates but I know I'll get some satisfaction both in finding some information on earning better interest rates and also seeing how others are dealing with the same situation.

 

 

3
Comment #7 by Anonymous posted on
Anonymous
To Over6T - #5,

So, you are with Obama, OK then, please explain Bernanke political statements and accommodations he made in behalf of Obama administration.
It is all about POLITICS and MONEY, they are inseparable, no matter what you say or think.
Bernanke is supposed to be neutral and independent, however, he is more political then a politician and more biased then a democrat.
He became like this when Obama took over the white house and they both made an agreement to accommodate low interest rates as long as Obama is in office and then some years after that.
If you think that you can separate the money from the politics, please explain it here and how are you going to do it?

2
Comment #8 by Over6T posted on
Over6T
Anonymous #7 - I'll indulge you for a moment.  The answer to your question is simple:

1) I'll get my deposit facts from Ken, and

2) I'll exercise my political views on November 6, 2012.

15
Comment #9 by stormdog123 posted on
stormdog123
To Anon #4

 

December CPI-U is posted =225.672
Base line for next change (September) =226.889
Total inflation for Oct Nov Dec = -0.536%
We have three more months to go before new I-bonds inflation component rate will be set.
I-bonds can not have negative rate of return, worst case scenario - we will be looking at 0% for next 6 month starting in May.

5
Comment #10 by Anonymous posted on
Anonymous
the savers of this country have suffered more than the losers and crooks that caused the fin mess. WAKE UP SAVERS YOUNG AND OLD TAKE YOUR MONEY OUT OF THE BANKS YOU ARE NOT GETTING ANY INT ANYWAY AND LETS SEE HOW BEN BERNANCKE SOLVES THIS>MAY HE AND THE REST OF THE FED ROT IN HELL FOR MAKING THE SAVERS SHOULDER THIS  MESS FOR OVER  YRS>

5
Comment #11 by Wiseman Sayeth (anonymous) posted on
Wiseman Sayeth
Hey, #10, if everyone takes their money out of banks, Bernanke won't sweat it.  He'll just print up more money and gift it to the banks.  When you hold cash, you hold trash, whether it is in your hand or in the bank.

Ken does an excellent job at finding the best deals, but, frankly, 3% in a heavily inflationary environment is a negative interest rate.  I go by what the economist, John Williams, says about the current inflation rate, and he says it is 10.7% this month, according to the inflation formula used in 1980.  That was before the government began its statistical lying campaign.

Assuming inflation doesn't rise, if you invest in these "high-paying" brokered CDs from Goldman Sachs' bank, you lose 7.7% per annum of your principal.  Neither banks nor this crooked government can be trusted to be fair to savers.  We are all getting ****ed.  If you can't beat them, join them.

Bernanke has already tripled the M1, and it is just a matter of time until the hyperinflation arrives.  I wouldn't touch a long term CD now.  My cash is positioned in liquid deposits, earning 1%, which is not good, but I will be ready to pounce as soon as the stock market starts to fall like it did back in 2009, which I hope it does.  I'll buy gold also.

2
Comment #12 by Bozo posted on
Bozo
It is my understanding that Vanguard's brokered CDs do NOT compound interest. Rather, interest is credited to a money market account or to your bank account. Accordingly, there is a significant re-investment risk not normally associated with your garden-variety CDs, where interest is compounded. This has been discussed at Bogleheads.

3
Comment #13 by Over6T posted on
Over6T
Bozo (#12) - Great comment.  Indeed, the brokered CD's I've had DID NOT pay interest on a compounded basis. 

One other consideration about brokered CD's is your ability to actually get documentation that a deposit existed with the bank in the depositor's name.  I did a due dilligence review at the height of the Madoff scams & bank failures in an attempt to determine whether my brokered CD's actually had a paper trail to the issuing bank and whether that bank could demonstrate to the FDIC that I had a deposit in their bank in my name.  As it turned out, my brokerage firm failed to provide the documentation and they said that I needed to rely on their transaction confirmation and monthly statements as proof of the deposit (if you recall that's the kind of documentation Madoff's client's relied on).  The bottom line is that I will never again purchae a brokered CD for the reasons I mention here and for many of the reasons others mentioned earlier in this posting.  If you feel I'm overstaing the concern, try calling the bank in which your brokered CD is issued and ask them to verify your name on a CD that you think they issued to you (they can't do it) - or, ask your brokerage firm for a copy of the actual CD document from the issuing bank (they can't do it).  Or, if you really want to get into th details of what's wrong with brokered CD's call the FDIC and ask them about the risks. Ask FDIC whether they will unequivocally insure your brokered CD if the lending institution fails.

While your at it, ask your broker to explain the role of the Depository Trust and Clearing Corporation (DTCC) and DTC's role in handling your brokered CD's. 

I don't recall Ken ever doing an indepth investigation about the specific risks of brokered CD's & FDIC coverage, but it would be worth a separate posting. 

4
Comment #14 by Anonymous posted on
Anonymous
I purchased a brokered IndyMac CD through Vanguard at original issue in 2008.  After IndyMac bounced 7/11/08, Vanguard automatically submitted the required information to the FDIC within a few days.  Subsequently my FDIC-insured principal and interest was deposited back into my Vanguard brokerage account on 7/29/08.  I thought Vanguard did a good job, especially since I wasn't their only affected customer.  Although I no longer hold brokered CDs due to the current rate squeeze, it sure simplifies the bookkeeping.

3
Comment #15 by Anonymous posted on
Anonymous
As Bozo #12 reports, interest from Brokerage C.D.'s do not get reinvested back into the existing C.D (Therefore no compounding occurs).  Instead the interest normally goes into a money market at the brokerage firm (Not insured by the FDIC and earning near 0 interest rate).  However; you normally can get access to that money as quickly as needed.

Be aware of doing this with IRA brokerage C.D.'s because you now have a situation of having interest earned money from the IRA brokerage C.D's sitting in a IRA money market account.  Brokerage firms normally require a minimum of $1K (In even $1K increments) to reinvest the money back into another C.D.  So the left amount under $1K stays in the money market, at the present time, earning near 0 rate.  If the C.D. rates at the brokerage firm are too low compared to other credit union or bank rates, which is currently the case, then you have the paperwork, mailing process, and waiting time to get the money in the IRA money market transferred out of the IRA brokerage account.  Everyone has a different set of goals.  I suppose if you were over age 59-1/2 and wanted to take the money in the IRA money market as a distribution and then pay taxes on it, then that would be another option.  The money you take out would not longer be tax deffered earnings though.

1