Bonds.com, Inc. through our trading platform, BondStation.com, is pleased to offer access to the
latest top rates by commercial banks, thrifts and brokerages in the FDIC-insured brokered CD market.
Product Overview:
Brokered CDs are Certificates of Deposit offered by a financial intermediary. Brokered CDs are
obligations of the bank, not the broker. Most, though not all, deposit brokers are securities
brokers registered with the Securities and Exchange Commission. Brokered CDs generally have the
features of CDs available directly from banks and are eligible for the same deposit insurance as
CDs purchased directly from banks.
They often pay higher rates than CDs purchased directly from a local bank because banks seeking
larger amounts of funding use brokered CDs to compete in the national marketplace. These CDs
normally provide more liquidity than bank CDs because they are traded similar to bonds in the
secondary market. CDs, in general, provide investors with an opportunity to earn a higher rate
of return than standard bank savings accounts, and are also insured by the Federal Deposit
Insurance Corporation up to $100,000 (up to $250,000 for retirement accounts). Investors receive
a full return of principal and interest if held to maturity, but can experience losses if sold
prior to maturity
Issuance:
Certificates of Deposit (“CDs”) are issued by banks, savings associations and other depository
institutions whose deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”).
Brokered CDs are CDs issued by banks that are made available to the customers of a deposit broker.
Features and Benefits:
- Wider selection of issuers - Through Brokered CDs, financial consultants have access to CDs from many institutions across the country. Investors can choose from a wide selection of maturities and coupon frequencies to find the appropriate CD best suited to their particular investment requirements
- Expanded FDIC coverage - The current limit on FDIC insurance coverage is $100,000 (including principal and interest) for all deposits held in the same capacity per depositor for each institution (up to $250,000 for retirement accounts). Investors can obtain expanded FDIC coverage by purchasing CDs from multiple issuing institutions. This concept is discussed further in the FDIC Insurance section of this guide. For complete details on FDIC insurance, be encouraged to visit FDIC.gov
- Rich structure variety - Brokered CDs are available in a variety of structures, such as Bullet, Callable, Fixed-Rate, Step-Up, Market Index Linked and Zero Coupon ("ZCD")
- Potential for higher yield - Brokered CDs offer investors the potential for higher yield in two ways:
- Investors have the opportunity to complete research for the highest yield in the market through access to a wide range of offerings from national issuers
- The rich variety of structures available provides investors with the flexibility necessary to optimize yield in accordance with their particular investment requirements
- Secondary market - An important distinction between Brokered CDs and Bank CDs is the different means for early redemption. Brokered CDs are actively traded in the secondary market, which provides an opportunity for investors to sell their CDs at the prevailing market levels, which may be worth more or less than the original amount invested. As explained earlier, Bank CDs typically carry an early withdrawal penalty, if redeemed early. It is important to note that if a Brokered CD is purchased in the secondary market at a premium over par, that premium is not covered by FDIC insurance
- Estate Feature - A valuable feature of most Brokered CDs is referred to as the survivor's option, which is designed to protect estate assets. This provision allows for the full withdrawal of the principal, with interest, in the event of the death or adjudication of incompetence of the beneficial owner, regardless of whether the current market value has fallen. It is important to note that very few fixed-income investments offer this attractive feature. The estate feature provides investors peace of mind knowing that their investment is protected in case of their death or incompetence
Risks
- CDs are subject to: Interest rate fluctuations, Credit risk, call risk, and sale before maturity
Taxes: For full information regarding the tax consequences of CDs, investors should consult their tax advisor.
For more information please access our affiliate site BondClass.com, or call one of our Relationship Managers at 1-888-266-3708.
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