What Are Brokered Certificates of Deposit (CDs)?

Learn how a brokered CD is different than a traditional CD issued by a bank

Brokered CDs are certificates of deposit purchased directly from a financial intermediary like a broker, advisor or financial consultant, rather than from a bank. They are still issued by a financial institution, but working through a broker allows customers the opportunity to purchase CDs in conjunction with other investments, as well as contribute money to an institution other than their local bank. Most people choose to work with a broker because the broker will do all the leg-work to find the best brokered CD interest rates available. However, consumers should use caution when working with a broker as there is no certification process and anyone can sell brokered CDs.

The benefits of brokered CDs

Brokered CD rates are typically higher than the current CD rates offered by your local bank. This is especially true if you share a certificate of deposit with other investors. Brokers may negotiate a deal with a financial institution involving multiple investors to create a larger CD. Investors may choose this type of CD when they don't have the capital to contribute to a larger CD alone and want to earn more interest from the bigger upfront investment.

You or your brokers have the ability to buy and sell brokered CDs on the secondary market. The secondary market is where previously issued investments are bought and sold by individuals or brokers. This is different than the primary market where a consumer purchases securities or other investments like stocks and bonds, directly from the issuer. In this case, the primary market relationship is between the issuing bank and the consumer. The secondary market is between the investor, broker, other potential investors and the financial institution holding the CD.

Banks don't allow you to access funds in certificates of deposit before their maturity date without paying a penalty fee. However, if you need access to the funds in a brokered CD, you can choose to sell the CD or your investment in a shared CD in the secondary market.

CDs from your local bank are likely to be reinvested unless you specify otherwise ahead of time. Brokered CDs, on the other hand, are not automatically reinvested in a new CD when they reach maturity. This gives you the option to either reinvest in a CD or invest your money elsewhere.

Be sure to research before purchasing a brokered CD

Since there is no certification for brokers selling CDs, make sure to thoroughly research the credentials of any broker you are considering working with. You may be able to find a reputable broker's network that works with an established investment company.

Most importantly, make sure you understand the risks of buying and selling in the secondary market as opposed to working with a trusted lender.

  • Financial advisors or consultants may charge a service fee for finding the brokered CD or securing a better brokered CD rate. Reading the fine print before you invest in brokered CDs will help raise your awareness of potential charges.
  • Brokered CDs, just like standard bank certificates of deposit, are insured by the FDIC up to $250,000 per institution. Therefore, you'll want to be aware which banks your broker is investing your money in, so you don't end up above this amount at any bank. If you max out the FDIC insurance (your investment exceeds $250,000), then you may not be able to get that money back if something were to happen to the bank.
  • You may risk losing money if you choose to sell your CD on the secondary market. If market interest rates have increased since your original investment, you may have an especially hard time finding a buyer who will invest in your lower rate CD as opposed to a higher rate from a local bank.
  • Some brokered CDs are callable CDs. This means the bank sets a date when they can choose to close your CD and pay you the principal and interest earned on that account up until that point. Make sure you take note of both the call date and the maturity date if you invest in this type of CD.

Choose to open a certificate of deposit with a trusted lender like Citizens Bank

When you work with Citizens Bank to build your savings portfolio, we will help you find the best investment options for your situation. Consider the benefits of a liquid money market account or a high-yield FDIC insured certificate of deposit for longer-term savings. For more information on traditional, breakable and brokered CDs, as well as other savings accounts from Citizens Bank, speak to one of our representatives at 1-877-360-2472 or open a CD online today.


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