Comparing Rates: Brokered CDs vs. Direct CDs

In the last few months, short-term brokered CD rates have become very competitive with direct CD rates. Before this year, direct CDs, especially those from internet banks, were the clear rate leaders for terms under 3 years. That has changed, and now brokered CDs are either ahead or close to the internet bank rate leaders.

Brokered CDs are purchased through brokerage firms like Fidelity, Vanguard or Charles Schwab. I’ve written many times about the pros and cons of brokered CDs. Last year, Charles Rechlin wrote a useful overview of brokered CDs and how they can simplify IRAs. In March of this year, Charles provided additional information on brokered CDs and reviewed how some of their rates compared with direct CDs. Due to the recent changes in short-term rates, I thought it would be interesting to review this again.

During the early stage of these near-zero interest rate years, brokered CD rates couldn’t compete with CD rates you could get by going directly to a bank. However, that changed around 2013. At that time, long-term brokered CD rates increased substantially until they exceeded direct CD rates. In this August 2013 post, I compared the top brokered CD rates with the best direct bank CD rates. As you can see in the 2013 post, brokered CD rates far exceeded direct CD rates for terms of 7 and 10 years. However, for a 5-year term, direct CDs took the lead. The lead grew for shorter terms. At the shortest term surveyed, the 1-year brokered CD rate was 60 bps above the best brokered CD rate.

Long-term brokered CD rates have remained competitive since 2013. This year shorter-term brokered CD rates started to rise. This is likely the result of the last three Fed rate hikes. As the short-term brokered CD rates became competitive, I included them in my biweekly CD summaries. First I included 2-, 3- and 4-year terms. Then in June I included terms under one year.

Below are a sample of the top rates for various terms 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 new issued CDs that are call protected.

Banks that Offer Both Brokered CDs and Direct Internet CDs

Below the brokered CD list, I included direct CDs from the banks that are offering the best brokered CDs. Discover Bank is one of the few internet banks offering 10-year and 7-year CDs. As you can see, their brokered CD rates for these terms are higher.

The difference is much larger for American Express Bank. The two American Express Banks (American Express Centurion and American Express Bank, FSB) were offering the best brokered CD rates for terms of 5-years to 2-years. These rates are much higher than what American Express’s internet bank is offering (The internet bank accounts are offered by American Express Bank, FSB).

Goldman Sachs Bank USA is offering the best brokered CD rates for terms of 12, 9 and 6 months. For the 1-year term, the brokered CD rate is just a tad higher (1.45% vs 1.40%). However, the brokered CD rates are much higher for the 6- and 9-month terms.

Goldman Sachs isn’t alone offering low short-term rates. Many of the large internet banks continue to offer 6-month and 9-month CD rates far below their online savings account rates. Anyone looking for a short-term CD from an internet bank should remember the 11-month No Penalty CDs from both Ally Bank and CIT Bank as I explained in my Ally No Penalty CD review and in my CIT Bank No Penalty CD review.

How the Best Direct Bank CD Rates Compare

The last list shown below includes the best CDs that are nationally available directly from banks. For apples-to-apples comparison, I excluded credit unions. Also, I excluded non-standard terms (like 61 months). I assumed a minimum deposit of $100k for the direct CDs. Several of these banks are not the well-established internet banks. Crestmark Bank is one example. Its Jumbo CDs ($100k minimum) currently dominate for terms of 2 years and under. State Bank of India Chicago has the best 60-month CD rate and KS StateBank has the best 7-year CD rate.

As you can see below, 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 generally grows as the terms shorten. The 4-year term is one exception. Also, it should be noted if it wasn’t for Crestmark Bank, brokered CDs would be the rate leaders for 6- and 9-month terms.

Please note that these rates change constantly, so these should be considered only a snapshot as of 8/21/2017.

Fidelity Brokered CDs - New Issue Offerings

• 10-year: 2.70% issued by Discover Bank
• 7-year: 2.50% issued by Discover Bank
• 5-year: 2.40% issued by American Express Centurion and American Express Bank, FSB
• 4-year: 2.20% issued by American Express Centurion and American Express Bank, FSB
• 3-year: 1.95% issued by American Express Centurion and American Express Bank, FSB
• 2-year: 1.75% issued by American Express Centurion and American Express Bank, FSB
• 1-year: 1.45% issued by Goldman Sachs, Discover and other banks
• 9-mon: 1.40% issued by Goldman Sachs, Compass and other banks
• 6-mon: 1.30% issued by Goldman Sachs, Banc of California, N.A. and other banks

Direct CD Rates from Discover, Goldman Sachs and American Express Banks

• 10-year: 2.35% APY at Discover Bank
• 7-year: 2.30% APY at Discover Bank
• 5-year: 1.70% APY at American Express Bank
• 4-year: 1.45% APY at American Express Bank
• 3-year: 1.25% APY at American Express Bank
• 2-year: 1.00% APY at American Express Bank
• 1-year: 1.40% APY at Goldman Sachs Bank
• 9-mon: 0.70% APY at Goldman Sachs Bank
• 6-mon: 0.60% APY at Goldman Sachs Bank

Best Direct CDs from Banks

• 10-year: 2.35% APY at Discover Bank
• 7-year: 2.40% APY at KS StateBank
• 5-year: 2.48% APY at State Bank of India Chicago
• 4-year: 2.16% APY at M.Y. Safra Bank and TIAA Direct
• 3-year: 2.00% APY at Salem Five Direct, TIAA Direct and Crestmark Bank
• 2-year: 1.85% APY at Crestmark Bank and GiftsforBanking.com
• 1-year: 1.70% APY at Crestmark Bank
• 9-mon: 1.55% APY at Crestmark Bank
• 6-mon: 1.50% APY at Crestmark Bank

How Rates Have Changed Since 2013

Refer to my 2013 comparison to see how the above rates compare with the brokered and direct CD rates four years ago.

Four years ago, the best 10-year brokered CD rate was 3.05%. However, the best 7-year brokered CD rate was the same as today (2.50%). All the shorter-term rates are higher today. This is especially the case for the 1-year brokered CD rate. In 2013, the top rate was only 0.45% which is a full percentage point under today’s top rate.

To find the latest best rates of direct CDs from both banks and credit unions, please refer to our CD rate tables. You can see how direct CD rates compare with brokered CD rates every other week in the CD rate summary.