Brokered CDs
Brokered CDs, Explained
Brokered CDs are issued by banks but bought through brokerage accounts. They work differently from CDs you open directly with a bank.
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How brokered CDs work
A brokerage firm buys CDs in bulk from issuing banks and offers them to its customers. You hold the CD in your brokerage account, often alongside other investments, and can choose among CDs from many different banks without opening separate accounts.
Selling before maturity
Brokered CDs generally can't be cashed in early with the issuing bank. Instead, you may be able to sell them on a secondary market. The price depends on prevailing interest rates: if rates have risen since you bought, your CD may sell for less than your original principal. A secondary market isn't guaranteed to exist for every CD.
Callable CDs
Some brokered CDs are callable, meaning the issuer can redeem them before maturity — usually when rates fall. You get your principal and accrued interest back, but must reinvest at the then-lower rates.
FDIC coverage for brokered CDs
FDIC insurance can apply to brokered CDs at the issuing bank, subject to the standard limits and to the brokerage maintaining proper records of ownership. Coverage is per depositor, per insured bank, per ownership category, so CDs from the same bank — bought directly or through a broker — count toward the same limit. Brokerage account protection from SIPC is different and does not cover losses from market value declines.
Know the difference
Traditional CDs vs Brokered CDs
Both are certificates of deposit, but they're bought, held and sold differently. Neither is universally better.
| Feature | Traditional Bank CDs | Brokered CDs |
|---|---|---|
| Where you open it | Typically opened directly with the issuing bank | Purchased through brokerage intermediaries |
| Issuer | The bank you open the account with | Often issued by third-party banks |
| Access before maturity | Early withdrawal may be possible, subject to penalties and product terms | May be sold before maturity if a secondary market exists |
| Value before maturity | Principal is not affected by market prices; penalties may reduce earnings or principal | Secondary-market sale prices can be below the original principal |
| FDIC insurance | Eligible deposits at FDIC-insured banks may receive FDIC insurance | FDIC insurance may cover eligible deposits at the issuing bank, subject to applicable limits and requirements |
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