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Fidelity Now Offers Fractional CDs

NYCDoug
  |     |   335 posts since 2011

https://digital.fidelity.com/prgw/digital/finewissues/

A certificate of deposit, or CD, is a federally insured savings deposit that offers a fixed interest rate with the assumption that you will hold your money in that CD until its maturity date. Typically, CDs require a minimum purchase of $1000 and can be opened with multiples of $1000, but with Fidelity's fractional CDs, we allow you to purchase CDs at lower minimums and at increments as low as $100.

Brokered CDs, that is . . . so no compounding of interest

The highest "fractional" rate tonight, through Fidelity, is 5.20% APY for a one-year CD, while, for comparison's sake, they are also brokering a "whole" one-year CD from Chase that yields 5.50% APY

Curiously, they don't say who sponsors that fractional CD.

Perhaps it's Fidelity's own home brew, where they skim off a middleman's (hidden) commission

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3


choice1
  |     |   372 posts since 2023
Why aren’t fractional interests a new security and require federal regulation…the issuer is clearly not the FI. Good luck, also, on FDIC insurance! 
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w00d00w
  |     |   360 posts since 2012
Fidelity has offered low minimum new issue brokered CDs for awhile now and lists the bank making the offering.
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5
John19
  |     |   397 posts since 2022
Got this email this morning:
As a valued WellsTrade client, we are excited to provide you early access to Stock Fractions. Now available in your WellsTrade account in the Wells Fargo Mobile.
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1
MAKNYC
  |     |   324 posts since 2015
I don’t believe this is a new development. They have offered these for a while. And the penalty discount for the lower increments makes them unattractive for all but the most green investors…perhaps kids/minors.

As for your sponsor question, either I don’t understand it or it’s likely a non-issue. These would appear to be exactly the same from an operational perspective as any brokered CD. Fidelity attempts to market their commitment from each depository institution, only allowing any denominational purchase. The depository institution still shows Fidelity as the owner of record (via DTC/Cede) of the entire offering. It’s only on Fidelity’s books that the actual holder records are kept. Worst case, if Fidelity commits to marketing $50 million of a specific instrument but only sells an aggregate of $49,999,001 they would inventory the remaining $999 on their books and earn the interest. No risk, small cost of doing business and locking up any compensation received from marketing the entire offering.
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Hooked
  |     |   238 posts since 2019
Like others said, this is not new. Months ago, I opened a Roth IRA at Fidelity for their $100 bonus and since the total was less than the $10k minimum for a standard purchase, I bought a short term fractional CD which has since matured.
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Confused1
  |     |   87 posts since 2018
Their minimum is $1,000 not $10,000.
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Hooked
  |     |   238 posts since 2019
Thanks for the correction and also for letting me borrow your username for two minutes…
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RichardW
  |     |   821 posts since 2019
It appears that Fidelity has been offering fractional CDs since September 2022 (see: https://www.bogleheads.org/forum/viewtopic.php?t=386363). As w00d00w mentioned earlier, Fidelity lists the bank making the offering. I have never seen a fractional CD offered at Fidelity where the bank making the offering was not listed.

The percentage of fractional CD offerings at Fidelity is typically very low. For example, as of 2 pm ET today, only 1 of 15 non-callable, new issue, 9-month, brokered CDs offered at Fidelity was a fractional CD offering. It was a Bank of America brokered CD with a settlement date of 8/9/2023, a maturity date of 5/9/2024, and a coupon of 5.25%.
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