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Retirement Savings: How Much Should I Save Each Month?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.
