There’s one more place for you to consider in your search for the best CD interest rate. If you have a brokerage account, brokered CDs may turn out to be an even better buy.
In addition to providing CDs directly to their customers, some banks offer large blocks to brokers who then resell them to their clients. Most of the major brokerage firms offer these brokered CDs to their clients and they often offer higher interest rates than are offered through direct bank purchases. Brokered CDs carry the same FDIC insurance as those bought directly from the banks.
For the most part, CDs bought through your broker will have the same provisions as regular CDs, but there are a few important differences.
If you need to withdraw your money from a regular CD before the maturity date, the bank will likely charge you a penalty amounting to three to six months of interest. With a brokered CD, you would simply have to sell it on the secondary market. If prevailing interest has risen since your original purchase, you could lose some of your principal.
In addition, some brokered CDs are callable. That means the bank retains the right to pay you back before the final maturity date if it is to their advantage to do so. For example, if interest rates fall, then the bank will likely call the CD, forcing you to find a replacement at lower rates. However, if rates go up, you’ll be locked in for the full term just as you would be with a direct purchase.
Still, brokered CDs may give you an opportunity to boost your monthly income. As long as you take the time to learn and understand the differences, buying a brokered CD may open the door to a world of higher rates.
The author is a freelance writer based in Abington, Pa., with 40 years experience in business management and financing.
