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Pros And Cons Of Brokered CDs

Monday, September 10, 2012 - 2:36 PM
This blog post at Darwin's Money lists 8 things to know about brokered CDs. The list has a few things that I had not considered. One is another risk of buying a callable brokered CD on the secondary market:
Paying a premium can bite you – Paying a premium above the face value of a brokered CD can come back to bite. A callable certificate of deposit acquired at $1.05 on the dollar will be called at face value – one dollar – leaving you with a loss of 5%

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Ken TuminKen Tumin5,471 posts since
Nov 29, 2009
Rep Points: 125,611
1. Monday, September 10, 2012 - 4:19 PM
I have brokered CDs and have never had to advise the FDIC that the broker is holding my CDs.  Is this only for when the bank of the CD fails?  I always check the ratings of the banks before I buy a brokered CD since many of their CDs are with troubled banks, imo.  All they seem to care about is if the bank is FDIC insured but I prefere the bank to be on more solid grounds before I buy a CD.  Are we supposed to call the FDIC everytime we purchase a new CD with a broker or brokers we regularly use?  Thanks!
paoli2paoli21,398 posts since
Aug 10, 2011
Rep Points: 6,129
2. Tuesday, September 11, 2012 - 6:46 AM
You don't have to inform the FDIC that the broker is holding the CDs.  Just make sure that the deposit account records indicate that the CD is held by the broker on your behalf (for example:  ABC Investments Client Account or ABC Investments, as Broker). You will also need to confirm that the records maintained by the broker or the bank identify your ownership interest in the account.  If you are dealing with a reputable broker, you should not have problems. 

The FDIC has additional information which may be helpful.  See especially items 11 and 12. 
pearlbrownpearlbrown1,467 posts since
Nov 2, 2010
Rep Points: 6,376
3. Tuesday, September 11, 2012 - 8:02 AM
A while back we had a similar discussion on here about brokered CDs and I called my broker and the FDIC.  I told them the CDs were in an IRA Rollover account under my DP's name and did I need any other proof than this to show they were being bought through this brokerage for that account.  I was told it was set up correctly and we needed no additional proof of the purchase are for whom the CDs really belonged to.  They also are insured but it is up to us to keep track of the banks we purchase them from (through the brokerage) to make sure we don't go over the insured amount and also to know the solvency of the particular bank.  I have refused many CDs listed by the brokerages after finding out they had a high risk factor.  Brokerages I deal with do not seem to be concerned if a bank is a one star etc. bank.  All they care about is if it is insured.  The rest is up to us to do.
paoli2paoli21,398 posts since
Aug 10, 2011
Rep Points: 6,129