CD Deals Summary
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In the last few months since the rise of Treasury yields, we have seen much higher rates on long-term brokered CDs. In the last few years brokered CD rates couldn’t compete with CD rates you could get by going directly to a bank. That’s no longer the case for long-term CDs. I thought it would be useful to do some comparisons between brokered CDs and CDs offered directly from banks.
There are some advantages with brokered CDs. One big advantage is simplicity. You can buy brokered CDs without all the paperwork that's required when you buy a direct CD. Also, with brokered CDs you can manage multiple CDs issued by different banks from one brokerage account.
If you are concerned about the CD disclosures from banks which can restrict your right to an early withdrawal, you won't have to worry about this issue with a brokered CD in which you can sell in the secondary market. This won't protect you from a loss, but at least you will have access to your money.
Brokered CDs also have several downsides as compared to direct CDs. I reviewed some of these downsides in this blog post. Some of these downsides include added risk. The FDIC recently published a consumers guide on brokered CDs and mentioned a few potential risks. I reviewed this consumers guide and brokered CD risks in this blog post. You can reduce the risks by purchasing brokered CDs from reputable brokers like Fidelity and Vanguard.
Below are a few of the brokered CD offerings from Fidelity. Sometimes you can get higher rates from Vanguard, but for simplicity, I’m only listing those from Fidelity. I only list CDs that are call protected. Below the brokered CD list, I’ve included the best CDs that are available directly from banks so you can see how they compare for different terms.
It’s important to note that these rates change constantly, so these should be considered only a snapshot as of 8/14/2013.
Fidelity Brokered CDs - New Issue Offerings
- 10-year: 3.05% issued from Discover Bank and Goldman Sachs Bank
- 7-year: 2.50% issued from Discover Bank and Goldman Sachs Bank and other banks
- 6-year: 2.10% issued from GE Capital Retail Bank
- 5-year: 1.95% issued from Discover Bank
- 4-year: 1.40% issued from GE Capital Retail Bank
- 3-year: 1.10% issued from Ally Bank
- 2-year: 0.75% issued from Ally Bank
- 1-year: 0.45% issued from Bank of Baroda
Best Direct CDs from Banks
- 10-year: 2.00% APY Jumbo CD at Intervest National Bank
- 7-year: 1.80% APY at Discover Bank
- 6-year: 2.00% APY at Third Federal
- 5-year: 2.06% APY at EverBank
- 4-year: 1.61% APY at EverBank
- 3-year: 1.50% APY at Salem Five Direct
- 2-year: 1.25% APY at Salem Five Direct
- 1-year: 1.05% APY at GE Capital Bank
As you can see above, the best rates for CD terms over 5 years are from brokered CDs. The direct CDs take the lead at 5 years, and the lead grows as the terms shorten. So if you prefer a short-term CD, you’ll earn much higher interest rates by dealing directly with the banks. If you prefer long-term CDs with terms over 5 years, you’ll earn the best rates with brokered CDs.
To find the latest best rates of direct CDs from both banks and credit unions, please refer to our CD rate tables.
Some are new issues which are close to being the same as the the one you get from a bank.
Other type of CD's sold by brokerage firms the ones in the secondary market. My understanding is that on secondary issues, if you pay a premium for the cd (above par), then that part is not fdic insured.
Also be aware that some of the CD's are callable and I am not sure why anyone would want a callable CD.
I was under the impression that with brokered CDs the interest was paid monthly/quarterly/semi-annualy/ to the holder. Isn't that the case??
Interest on my IRA CDs at Fidelity and Vanguard does go into my core IRA cash accounts there. I don't withdraw those amounts because I'm 67 and don't want to make any taxable withdrawals from my IRAs until I'm 70-1/2, when I have to. If I get, say, $300 for 6 months interest on a GS Bank CD at Vanguard, I can't reinvest it in another GS Bank or other bank brokered CD, because of Vanguard's $10k minimum purchase requirement. It goes into a Vanguard money market fund, which pays basically nothing. Eventually, I may take accumulated interest and do a trustee-to-trustee transfer of it to, say, my CIT IRA savings account, just to get more than I can get on Vanguard's money market fund.
Thanks
As you can see, I'm new to buying brokered CDs. Your help is much appreciated.
Does the brokerage firm provide you with the FDIC Certificate Numbers after purchase?
Would you send me the FDIC website where you validate insured coverage?
Does the Cuspid # have anything to do with proving their insured?
Thanks.
http://research.fdic.gov/bankfind/
Thanks for the info.
Is there a way to trace the CDs from you to your Brokerage firm and then to the issuing FDIC Bank?
Any type of documentation you receive upon purchase that provides for an audit trail?.
Do you rely solely on the Brokerage Firms to provide you with FDIC insured CDs?
What other documentation do you get that shows the Master Certificates issued by the bank and held by the Depository Trust Company (“DTC”) are properly title as required by the FDIC?
Thanks.
I do not think big brokerages like Fidelity or even Vanguard would risk not having all the documentation they need on the CDs they purchase in big blocks for customers. They are not responsible for the financial standing of the banks they purchase from. This is why I do my own homework in this area. I have never dealt with Charles Swab so I do not know how they handle their CDs.
In your post #22 you stated "If they put on the statement or prospectus that it was and it was not, they would be deceiving their customers".
If the brokerage firm "deceived their customer" and a bank defaulted that had a brokered cd, who would cover YOUR potiential losses?
Thanks.
You also have to consider what it would do to the brokerage's financial standing if they were caught lying to customers about something so important as FDIC insurance. That would make one heck of a Class Action Lawsuit that could destroy them. I don't think they would risk it. Also, if the CD is from a legitimate US bank and you check it out on FDIC Bank Find, you can see very easily the Certificate number for the insurance. I do the same research on all banks I deal with not just for brokerages.
My point is that the Broker Cds need to be set up "properly" by the issuing bank. The fact that you check the bank is FDIC insured isn't enough.
As you stated, Fidelity "have documentation that all of the banks they buy CDs from are FDIC insured" but "They do not provide this to buyers". This is the documentation you need to back-up any claim you may need if a bank defaults.
You are trusting Fidelity that the CDs were set-up properly. Why is it that Fidelity doesn't provide this documentaton to you? I don't believe you have the ability to do this verification on your own.
As you see, I too can be quite paranoid when it comes to trusting money to any bank or institution.
Thanks.
I am thinking about buying new-issue, non-callable domestic CDs through my tIRA account at Schwab. If I do it, who becomes custodian of the CD? If it is the issuing bank, then does the IRS view the purchase as a trustee-to-trustee transfer or rollover? And does this trigger a 1099-R? And what about interest payments?
Thanks!
Call Schwab and someone will explain it to you. Never take financial advice from anyone on any internet blog site as fact without verifying it.
I did call Schwab and got the same response; however, I'm always suspicious of money managers, particularly when I can't find the answer in print. Additionally, I always appreciate other people's personal experiences since they've already walked the path.
Thanks again.