2025 Brokered CDs: Higher Yields from $1,000 Investments with Risks Explained

In the current financial environment, brokered certificates of deposit (CDs) present an enticing opportunity for investors seeking higher returns with added flexibility, albeit with increased risks compared to traditional CDs.

Unlike conventional CDs purchased directly from banks or credit unions, brokered CDs are acquired through brokerage firms. These products typically offer superior yields, sometimes ranging between 5.25% and 5.50% as of mid-2024, outpacing traditional bank CDs that average below 2%. However, this enhanced return comes with nuances investors should understand.

Key Highlights

• Brokered CDs are bought via brokerage accounts rather than directly from banks or credit unions.
• They often provide higher interest rates and can be traded on secondary markets, although their market value fluctuates with interest rate changes.
• Unlike traditional CDs, brokered CDs usually lack early withdrawal penalties but require a minimum investment, commonly $1,000.
• Some brokered CDs include a "call" feature, allowing issuers to redeem the CD before maturity if rates decline.

Comparing Brokered CDs to Traditional CDs

Annual yields on CDs have surged, reaching up to 5.65% depending on term length, marking the highest rates since before the 2008 financial crisis. Traditional CDs typically lock in fixed rates for terms ranging from 3 months to 5 years, with penalties for early withdrawal. In contrast, brokered CDs offer flexibility by allowing trading on secondary markets, which introduces market risk as their value can fluctuate before maturity.

Brokered CDs may be issued by FDIC-member banks, offering indirect federal insurance protection up to $250,000, though investors should verify specific terms. Purchasing brokered CDs from multiple banks through a brokerage can help diversify and potentially extend FDIC coverage.

Considerations for Investors

Brokered CDs generally attract wealthier investors due to minimum purchase requirements and the ability to hold multiple CDs within a single brokerage account. Terms can extend up to 20 years, providing long-term investment options without typical early withdrawal penalties.

However, the "call option" feature means the issuing bank can redeem the CD early if interest rates fall, returning principal but potentially limiting interest earnings. Conversely, if interest rates rise, the market value of brokered CDs may decline, posing a risk if sold before maturity.

Given potential Federal Reserve interest rate adjustments, investors should carefully assess these risks when considering brokered CDs in their portfolios.

How We Track CD Rates

Our daily rate tracking covers over 200 federally insured banks and credit unions nationwide, ensuring only competitive and accessible CDs are featured. Institutions must be available in at least 40 states, and credit unions with high donation requirements are excluded to maintain broad investor accessibility.

For detailed methodology on how we select the best CD rates, please refer to our full guide.

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