A brokered CD is a type of CD banks issue to brokerage and investment firms, who then offer them to their customers. You can open a brokered CD through your broker rather than your bank. The advantage of brokered CDs is that they typically provide a higher yield than traditional CDs. Since the broker can make a deposit substantially larger than
Being exempt from California state taxes (min 9.3%) is a big plus. For CDs/Treasuries with a duration of 12-18 months, there no need to sell them early. We are on the upper end of the interest rate increases, another 0.5% is not that significant. I also have shorter durations of 3-6 months CDs/Treasuries. Subvisual.
Best 2-yr rate (brokered cd) = Discover Bank .869%. Discover and Synchrony are offering 2-year cd's at .65%. A far better deal at Schwab right now would be secondary market Treasuries. Better rate, best liquidity: US Treasury maturing 1/31/23 yield .803%. US Treasury maturing 1/31/24 yield 1.172%.
Brokers can earn fees on brokered CDs in two ways. The first is through an interest rate spread. In a typical example, the broker will offer CDs paying 2.00% to its customers at a rate of 1.75%. The difference of 0.25% between the two rates is a fee to the broker. The second scenario is a flat fee.
Bonds are also more liquid than CDs because you can buy or sell them on the secondary market—although some bonds may be harder to sell than others. They may also require a larger investment
The net result is that core deposits are less "sticky." These trends require a different view of brokered deposits. The current thinking puts a high value on deposits of customers who could switch banks at any moment. Bank failures traditionally happen in two ways: 1) a liquidity crisis, or 2) poor asset quality.
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brokered cd vs bank cd
