Brokered CD.

In plain English

A brokered CD is a certificate of deposit that a brokerage firm offers to its customers, sourcing it from many different banks. Because the brokerage shops across institutions, you can compare a wide range of terms and rates in one place, and the underlying bank's FDIC insurance still applies up to the legal limit. The catch is that brokered CDs work more like securities: you usually cannot just cash out early, and if you need your money before maturity you sell the CD on a secondary market, where the price can be more or less than what you paid. Some brokered CDs are also 'callable,' meaning the issuing bank can end them early.

01Why it matters

A brokered CD can spread money across several banks for more FDIC coverage and let you compare rates easily, but the early-exit rules are stricter than a bank CD, so you can lose money if you sell before maturity.

02The math, step by step

Through your brokerage account, you buy a 25,000 dollar brokered CD from one bank and another from a second bank, keeping each within the FDIC limit. A year later you need cash early, so instead of a simple withdrawal you must sell the CD on the secondary market. If interest rates have risen, your CD may sell for less than 25,000 dollars. CD rates vary by institution and change over time, so compare current rates.

03What this is NOT

04Receipts

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