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Low rates on certificates of deposit got you down? A brokered CD may be the answer.

Before rushing over to the Fidelity or TD Ameritrade website, know that brokered CDs come with a couple of complexities. Those can include the math involved with buying a CD trading at a premium (or a discount) to par, or face value, and the impact on FDIC-insurance coverage.

Just like it sounds, a brokered CD is a regular bank CD offered to investors through a brokerage.

Allan Roth, reporting for the Wall Street Journal, wrote this week that some of the brokered CDs he found offered yields as high as 3.11 percent.

But there was one caveat: Because interest rates have declined since the CD — offered by Synchrony Bank — was issued (causing bond prices to rise), this CD is being offered at a premium to its face value. That affects the FDIC insurance a buyer gets.

Here’s what Roth writes:

“The purchase price is $101.498 and the CD will mature at $100. (The coupon payment is 3.30 percent or 0.19 percentage point more than the current 3.11 percent yield. In effect, the 0.19 percent is return of your own principal.)  The FDIC insurance applies only to the par value of $100.  If Synchrony Bank were to fail, you would be exposed for that $1.498 premium you paid. Thus, you could think of it as your money being about 98.5 percent FDIC-insured.”

Buying a CD — or a bond — at a premium means the interest rate on the instrument is higher than prevailing rates. You’re going to pay a little bit more up front for the higher interest payments. Someone purchasing a brand-new CD would pay the par value for the CD or bond, $100.

Brokered CDs are not without risk, however. The above-referenced CD matures in 2024. A lot can happen to interest rates in nearly a decade.

To learn more check out Brokered CDs easy route to higher CD rates.

Do you own brokered CDs? Tell us about them.

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Follow me on Twitter @SheynaSteiner

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Senior investing reporter Sheyna Steiner is a co-author of “Future Millionaires’ Guidebook,” an e-book written by Bankrate editors and reporters. It’s available at all the major e-book retailers.

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