Difficulty In Selling Brokered CDs?

Ken Tumin | Aug 27, 2013 | 6,056 posts since 2009

One reader emailed me about his experience in trying to sell Fidelity brokered CDs. Here’s an excerpt of his email:

I have brokered CDs with Fidelity. I never had any luck in selling one if I wanted to cash it early, even when interest rates were in my favor. I was told that the CDs I had were too small.

The reader said his CDs were in the range of $4,000 and $40,000.

I tried to get more details from a Fidelity CSR about selling small CDs, but he wasn’t able to provide any. The CSR just said that there may be times when you might not be able to sell a brokered CD on Fidelity’s secondary market.

For those who have sold brokered CDs at Fidelity or at other brokerages, did you have any problems? And what were the sizes of your CDs?

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Answers

cumulus | Aug 28, 2013 | 1,067 posts since 2010

Not a direct answer to your question Ken, but today's Scott Burns column
contains some useful info on this topic (question 2, not question 1).

Note: he concludes by saying "Getting a reasonable price on broker-sold
CDs if you want to sell them before maturity date is a regular source of
complaint from readers."

Hope this is helpful for a few DA members.

lou | Aug 29, 2013 | 775 posts since 2010

Ken, I don't buy brokered CD's precisely for this reason. I do buy corporate bonds but only issues that trade everyday. I have never seen a brokered CD trade more than a couple times a month. I would only buy a brokered CD if I was sure I would not mind holding the CD until maturity.

paoli2 | Mar 20, 2015 | 2,571 posts since 2011

We have owned brokered CDS in a Fidelity IRA for more years than some of you have been born. However, Fidelity always made it clear that one may not always be able to get a buyer for that CD on the Secondary Market if you want to sell before maturity. We have never had to sell a brokered CD and would not want to risk the loss if we had to. The CDs have worked out well for us in the IRA but would urge readers to understand the risks of buying brokered CDs before purchasing them. Fidelity has a long spiel they "must" read to customers to protect themselves if the customer does not understand the difference between bank CDs and their type of CDs. The word is "proceed with caution".

Ally6770 | Mar 21, 2015 | 2,778 posts since 2010

I have never purchased a brokered CD for three reasons
1. The money might be in a bank that you already are at or near your limit.
2. If the institution who have your money goes under the FDIC has no
authority over the broker to make sure you get your money from them.
3. As I got older I did not want to leave a mess for the beneficiaries.

In the 80's many of the brokered CD's were at Savings and Loans

If you buy a CD directly from a bank and it fails, you will receive an insurance payment faster than you would if you purchased it through a broker. With brokered CDs, the FDIC must first obtain from the broker the name and deposit amount for each CD investor. Then the FDIC will send the deposit insurance check to the broker, who in turn is responsible for distributing the payment to the consumer, and that can result in further delays. Note that the FDIC does not supervise or become involved in the arrangements between brokers and consumers.

https://www.fdic.gov/consumers/consumer/news/cnspr13/cdsfrombrokers.html

paoli2 | Mar 21, 2015 | 2,571 posts since 2011

Re: Ally6770: I read nothing on your link that would concern me about continuing to buy brokered CDs as long as it was from a well known broker like Fidelity or Vanguard. As for your #1 about the bank and limit, that is definitely up to the purchaser to be in control of. Our brokers know I keep a ledger of which bank CDs I buy so I don't go over the limit with buying from more than one broker. That is the customer's responsibility to keep track of, not the brokers. You would have to do the same even with unbrokered CDs so that is not a problem. If you want to make sure you get your money, you just make sure you are with a responsible broker from day one. We have had a bank go under for a CD we had purchased from one of our brokers and the entire amount was transferred back into our broker's cash reserves account for us faster than I could ever have expected. I was able to use it to buy a CD from another bank. The money was in the account before we even got the notice the bank had failed! As long as the funds are FDIC insured, I assure you, the FDIC would be involved as long as your broker was legit. Whether they are or not, is your responsibility. If you don't want to leave a "mess" for beneficiaries, "you" must make sure to do your research (as I am sure you do just as well as I do) and they would have no problems with brokered accounts. I use two brokers from day one because I wanted to "test" them out for how they handle their accounts and what kind of reps they hired. I have been so pleased with both that to this day we still stay with both. The FDIC does not have to supervise anything if you are with an established, professional broker.

MRW | Apr 24, 2019 | 1 posts since 2019

Although I prefer to hold my brokered CDs to maturity in my 10-year ladder, I have sold many brokered CDs at Vanguard and I've never had any difficulty. Often there are already bids for the CDs when I place an order to sell. If there are no bids, Vanguard solicits bids and advises me to check back in 30 minutes. So far they've always found a reasonable bid for my CDs, usually within a few minutes. Once, I received an automated message from Vanguard that they didn't make a market for a particular CD I wanted to sell, but it turned out it was an errant message I received because I had tried to place an order on a Sunday. You can only buy and sell CDs on the secondary market during market hours. I placed the order on Monday after the market opened and had it sold within five minutes.

jeffb1517 | Apr 24, 2019 | 10 posts since 2019

@MRW

That's what I would figure. 2nd hand Brokered CDs are just bonds. They sell like the secondary market for thinly traded bonds. Price the bond reasonable and it is gone in 2 days or less. People are going to scoop up a good CD value, and totally ignore anything that isn't.

JimDavis | Apr 26, 2019 | 68 posts since 2015

I used to find decent deals on secondary CD's for sale. Haven't even looked in the last few years as there are rarely any bargains.

If you price you CD to yield .5 or so above the market rate (not a huge discount to 100) is should sell. Maybe they are not displaying it to the market properly

jeffb1517 | Apr 26, 2019 | 10 posts since 2019

Money markets funds buy up all the best deals. They'll get there before you do. There is some spread for the annoyance but not much.

Fidelity screens for people looking for 2nd hand CDs are excellent. I don't think the problem is how they are displayed. As an aside something like .5% would get scooped instantly. I was thinking more like .02-.05% above going 2ndary issues.

willy12 | May 3, 2019 | 134 posts since 2019

Ive bought some brokered CDs at fidelity a number of times so I can't see any reason why someone might not be able to sell....other than not lowering the price.

I own a few that I am sitting on losses on. I have not attempted to sell. You may have to place a small buy order in the same CD for their system to accept the offer? It can be below market.

My view is that good deals are quickly snapped up and bad deals just sit there with no interest.

Why would anyone buy a brokered CD in the secondary market unless it was above market or if they want a specific date?

Fidelitys system does not make it easy to place orders like stocks on active trader pro.

Because brokered CDs are not competitive, I see little reason to buy them. When I bought the ones I am sitting at a loss on, I was probably thinking about convenience, not having to open another account elsewhere.

I check from time to time and place a few orders but I have not bought a secondary market CD in a while because I have not found a reasonable deal. When I did, I expect the seller was glued to his computer screen and saw my offer and sold to me.

AnnO | May 3, 2019 | 129 posts since 2018

"I expect the seller was glued to his computer screen and saw my offer and sold to me."

I assumed the seller could set a price they're willing to automatically accept, instead of having to monitor offers manually.

willy12 | May 4, 2019 | 134 posts since 2019

The reason I think the seller was paying attention is how it happened.

For example, i saw an offer for 6 CDs at say 2.50% so I put in an offer at 3% for 6 and it filled quickly.

That suggests the seller saw my bid and hit it because right after the offer at 2.5% was gone.

Anyone can place limit orders but smacking a bid guarantees a fill with CDs like stocks.

Aggie | May 4, 2019 | 26 posts since 2019

You can always ask fidelity for a bid quote on small brokered CD.s. I have had pretty good luck doing this.

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