Brokered CDs vs. Bank CDs: 6 Major Differences Between Them

If you want a certificate of deposit (CD), you can buy one directly from a bank or open a brokerage CD account. There are some major differences between brokered CDs and bank CDs, including yields and fees.

To decide which is the better investment for you, see the breakdown of brokered CDs vs. bank CDs below.

Brokered CDs vs. bank CDs: 6 major differences

All CDs involve investing a fixed sum of money for a fixed period of time and allowing that sum to earn interest. But not all CDs are created equal.

Here are six major differences between brokered CDs and bank CDs.

1. Brokered CDs and bank CDs are issued differently

The process of issuing a bank CD is straightforward. You buy the CD directly from the bank, which holds it for you in an account under your name until it matures. If you want to own multiple bank CDs — for example, by using a CD laddering strategy — you need to open separate accounts for each one.

Brokered CDs are a bit more complex. The brokerage buys a large CD, known as a “master CD,” from a bank. It then sells interests or shares in the master CD to individuals. Because you’re only buying shares in a CD rather than the entire CD itself, multiple brokered CDs can be held in the same account.

2. Brokered CDs and bank CDs have different yields and term lengths

Master CDs are expensive, so when a brokerage buys one, it’s providing a lot of business for the bank selling it. As a result, these CDs can offer higher yields than your traditional bank CD.

For instance, as of Jan. 09, 2025:

• Bank CDs: The annual percentage yield (APY) on a 12-month, fixed-rate CD from Wells Fargo was just 3.25%* APY, while U.S. Bank offered 3.20%* APY for its 13-month option.
• Brokered CDs: Marcus by Goldman Sachs offered 4.25%* APY on a 12-month CD, and Charles Schwab had a 4.55%* APY for the same term.

Brokerage CDs can also offer longer maturity terms. While a traditional bank CD's term typically extends up to 10 years, a brokerage CD can last much longer, up to 30 years in some cases.

3. Brokered CDs and bank CDs are insured differently

Bank CDs are FDIC-insured, up to the $250,000 limit per depositor. This means you can hold up to that amount in CDs and other deposits at each bank and still be fully insured in the event of a bank failure.

In contrast, only some brokered CDs are insured this way. In this scenario, the master CD policy is usually FDIC-insured, but the individual shares may not be. Brokerages must meet certain requirements to offer pass-through FDIC insurance and protect their clients’ investments. That’s why it’s especially important to work with a reputable broker.

4. Brokered CDs and bank CDs have different fee structures

Brokered CDs charge fees differently. These are called “sales fees,” and they’re charged whenever you buy or sell a brokered CD on the secondary market. The amount of these fees varies by brokerage, so be sure to ask about the fee structure beforehand.

With bank CDs, you won’t face any initial fees. Instead, you can be charged an early withdrawal penalty if you take money out of the CD before it reaches its maturity date — something brokered CDs don’t have. The penalty is usually equivalent to a portion of your earned interest. These penalties can be steep, so make sure to ask what your losses will be if you need to access your money before the term ends.

5. Brokered CDs pay simple interest, while bank CDs pay compound interest

CD interest is also different. Brokered CDs generally pay interest at regular intervals, which could be monthly, quarterly or semiannually. Bank CDs usually pay interest on a daily or monthly basis.

Also, brokered CDs often pay simple interest, while bank CDs typically pay compound interest. With simple interest, you earn based on the original amount you invested. With compound interest, you also get interest on any interest previously earned.

6. Brokered CDs are variable and callable, while bank CDs are not

Because brokered CDs can be sold on the secondary market, their value can change over time. This means you could lose money on this type of investment, unlike with bank CDs.

For instance, if the market expects interest rates on a brokered CD similar to yours to rise, the value of your CD could decrease to reflect its relatively lower rate.

Meanwhile, the interest rate on a bank CD can change if you’ve chosen an adjustable-rate option, but the underlying value of a bank CD will always stay the same.

Brokered CDs also have a unique feature not found with bank CDs — they are callable, meaning that the broker has the right to close them before their maturity dates. If this happens (usually because interest rates have changed dramatically), the broker must return the amount originally invested in the CD, plus any interest earned to date.

How to choose between a brokered CD and a bank CD

Now that you know more about brokered CDs versus bank CDs, here are some tips on choosing which type of investment is best for you.

Signs you may want to choose a brokered CD

• You want more flexibility: Brokered CDs can be sold on the secondary market at any time, and you won’t have to face an early withdrawal penalty. They may be a good option if you think you might need your money before the end of your maturity term.
• You want to diversify easily: Because you’re only buying an interest in a brokered CD rather than the CD itself, you can hold several different brokered CDs in the same account.
• You want a higher yield or a longer maturity term: Brokered CDs often offer higher yields and longer maturity terms than bank CDs — sometimes up to 30 years.

Signs you may want to choose a bank CD

• You want a more stable investment: Brokered CDs can sometimes lose value, and many come with call features that allow the broker to close your CD with little notice. Bank CDs are more stable because the account won’t close early unless you request it, and the underlying value will always stay the same.
• You want your investment to earn compound interest: Bank CDs almost always earn compound interest, while brokerage CDs tend to pay simple interest.
• You want a guarantee that your money will be FDIC-insured: All bank CDs are fully insured, up to $250,000 per depositor. Brokered CDs, on the other hand, do not always have this benefit.