Brokered CDs Offer Attractive Yields from Big Banks
Major banks including JPMorgan, Goldman Sachs, Morgan Stanley, and Bank of America are offering competitive annual percentage yields (APYs) on one-year brokered CDs. These CDs are purchased through brokerage firms like Fidelity, Schwab, or Vanguard, providing access to a wider range of issuers and potentially higher yields than traditional CDs.
Brokered CDs are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor and are offered in various maturities. However, they may be callable, meaning the issuing bank can redeem the CD before its maturity date. This could result in a shorter interest earning period than expected.
Investors should also consider their time frame and risk tolerance before purchasing a CD. With bank CDs, a penalty is incurred for early withdrawal, while brokered CDs must be sold on the secondary market, potentially leading to principal loss if rates move unfavorably. Transaction fees may also apply when selling brokered CDs on the secondary market.
Despite these potential drawbacks, brokered CDs can be a convenient option for investors with existing accounts at specific brokerage firms and can facilitate the creation of CD ladders, which can help spread risk and optimize returns in uncertain market conditions. By staggering maturities, investors can lock in higher rates for future maturities while maintaining flexibility with shorter maturities.
