Bank CDs vs. Brokered CDs
This is a writing sample from Scripted writer Tanya Merriam
What is a CD?
A CD is a type of savings account offered by a bank or financial institution. It's like a regular savings account, but instead of depositing money periodically into an account, a customer deposits a lump sum that draws interest.
Along with the advantages of the CD also comes a penalty for early withdraw. So, it's important that customers are aware of those penalties before making a purchase and prepare to leave the money for the allotted length of time.
Brokered CDs
A brokered CD is a CD purchased from a financial firm or brokerage. It's sold to the customer by a brokerage representative rather than the customer purchasing directly from a bank.
The banks outsource or sell the CD to the bank but still handle the CD account once they deposit their money into the account. One potential benefit is that sometimes these CDs can offer a better yield due to the competitive nature of the market.
These CDs are slightly more flexible but also leave room for error by the investors. The brokered CD is somewhat risky as opposed to a bank offered CD.
You'll also want to consider the fees incurred by using a brokerage to purchase a CD. There's also the potential to lose money on a 20-year brokered CD if interest rates rise and it needs to be sold by the investor.
Bank CDs
Purchasing a bank CD is much less complex and straightforward. You go to your local community bank and inquire about the CD's interest rates and other pertinent details. If you decide to deposit your money, a bank representative or specialist will handle the transaction in-house.
There's no need to pay extra brokerage fees, and your money is safe, and the interest locks in at a certain percentage. The bank sets the terms for the CD, and the customer determines the length of time it stays in the account.
Some standard time frames are six months, 18 months, one year, and more. There are other specialty CDs a bank could offer, and if you qualify, they may provide additional details for your consideration.
Summary
Brokered CDs and Bank CDs are the same product but with differences related to risk, interest, and fees. For a more secure and predictable experience, it's safer to choose a community bank-issued CD. Visit your local bank to learn more about their terms and current interest rates.
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