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Special "New Caution" About Buying Brokered Cds

paoli2
  |     |   2,641 posts since 2011

Folks, I found out some information this week which I think needs sharing. I have never had a concern about buying brokered CDs for my spouse's Rollover IRA since upon maturity the money always went into the brokerage's Cash Reserves so that I could, in turn, buy another new CD. This week I did just that but due to a concern I had to call them back. I got another agent and in our conversation, he shared with me that the brokerage has a new policy for the CDs. Upon Maturity, the brokerage gets another CD of the same type purchased (2 yr, 5 yr. etc) with whatever interest rate they have at the time and the former CD rolls over into that new CD without the customer having to call and do anything.

Well I was shocked and insisted on them noting in my spouse's file that they are NEVER to purchase any CDs for us! I am his authorized agent on the account and I need the funds to go into the cash reserve so that I can withdraw what he needs for his RMD each year. If they put it into another CD, I will be stuck trying to sell it on their secondary market which even they know is not always possible. I told them they should send letters out to customers making them aware of this new policy. I was very disappointed with Fidelity for their actions and insisted they make sure my new CD did not have this on it. They checked and made sure his account has "NO ROLLOVERS" marked on it but I have to make sure I always remind the agent whenever I buy a new CD now since frankly, I will not leave this for them to take care of. I am also calling his other brokerage today and find out if they have this new policy too.

For anyone having accounts with Fidelity, and you do not want to be affected by their new CD policy, I suggest you might want to contact them and let them know if you will allow them to buy the new CD for you upon maturity.

People might not want another CD for the same term as the one which matures and will be stuck battling the Secondary market if they don't keep it until maturity. IMO, this is not the responsibility of the brokerage to decide which new CD we will have.

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17


Answers
paoli2
  |     |   2,641 posts since 2011
Folks, I just got off of the phone with a Supervisor at the brokerage I posted about above. He explained there is a misunderstanding of what they do. It is called "Auto Roll" and is only an option which the customer can select when they purchase a CD. It is at the bottom of the page and very small and frankly, I have never seen it. Since I usually buy my new CD "before" the other matures which one can do at this brokerage to get the CD one may prefer, I guess I didn't get the sheet he is referring to. If one does not mark an option, the funds from the matured CD goes into their cash reserves as usual. I told him he needs to get his other agents to understand it better and explain it this way to customers. We also have our file marked "No Auto Roll" for future CDs just for our peace of mine. So it is not as concerning as I first thought.

BTW, I called his other brokerage and they do not have "Auto Roll" at all. The matured funds just go into their Settlement Fund as cash to be used as needed.
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9
Ally6770
  |     |   4,294 posts since 2010
A reason for not using brokered CD's is that you don't know when and if you will have over your limits
in an insured CD in the future and 2 it takes longer to get your money if you have a brokered CD with a bank or credit union if it is taken over.
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3
paoli2
  |     |   2,641 posts since 2011
Our brokerages do make it clear that the customer must keep the accounting of which banks they have CDs with especially as in our case we may purchase the same banks with both brokerages. I keep a tab on all of them to make sure I don't go over the insured limits. During all the years we have been with the brokerages, we have had only one bank which failed and the total money we had with them went directly into the cash reserves at the brokerage. It was not a problem.
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7
willy12
  |     |   143 posts since 2019
I have brokered CDs at Fidelity and I have NEVER had one auto-rolled into another CD.

I feel no need to call them regarding it and I am confident that if they ever did an auto-roll by mistake, they would correct it.
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3


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