Whether you’re seeking a safe and stable way to grow your money, or have a big purchase coming within the next year it’s worth looking into certificates of deposits (CDs). CDs help you maximize returns on a low risk investment. For the past decade or so, CDs haven’t offered very attractive rates. With interest rates rising, short term CDs are now paying 5%+. Instead of searching for the CDs that offered the best yields, you can go to Charles Schwab, or another brokerage firm, and buy CDs offered by another bank. These CDs are called Brokered CDs. In this post, we’ll walk you through the process of buying brokered CDs on Charles Schwab and answer frequently asked questions.
What is A Brokered CD?
A brokered CD is a type of certificate of deposit that is bought and sold through a brokerage firm, such as Charles Schwab. Unlike traditional CDs that are typically offered directly by banks or credit unions, brokered CDs are issued by various financial institutions and made available to investors through brokerage platforms.
How do Brokered CDs work?
Brokered CDs are issued by banks, thrift institutions, and credit unions. These are the issuers of brokered CDs. These financial institutions offer the CDs to brokerage firms. Then, the brokerage firms make them available to individual investors.
Investors can access brokered CDs through brokerage platforms like Charles Schwab, Fidelity, or TD Ameritrade. These brokerage platforms provide a wide selection of CDs from various issuers, offering investors greater choice and flexibility. On the platform, it’s easy to browse one month CDs, 3 month CDs and CDs of longer term lengths.
Unlike traditional CDs, which are held until maturity, brokered CDs can be bought and sold on the secondary market. This means that investors can sell their CDs before they reach maturity, potentially allowing for liquidity and flexibility. However, you may not get a favorable price by selling it early.
Why Buy Brokered CDs?
Before getting into how to buy brokered CDs on Charles Schwab, why should you buy brokered CDs? Brokered CDs are bought and sold on the secondary market through a brokerage firm. They typically offer higher yields and have a wide selection of CDs offered by different banks. You are able to use an account you already have, instead of creating an account at every bank that is selling the CD.
What Should You Look For When Buying a Brokered CD?
Brokered CDs typically come with specific terms, including the maturity date and interest rate. Maturity dates can range from a few months to several years, so pick the maturity date that aligns to your personal financial goals and needs.
The price and yield of a brokered CD can fluctuate based on market conditions. Issuers sometimes offer different rates at the same time, so if you want a 3 month CD, check to see how the yield of that CD compares to other 3 month CDs.
Lastly, check if the CD is callable. A callable CD can be redeemed by the issuer before its maturity date and is more risky than a non-callable CD.
How to Buy a Brokered CD at Charles Schwab
To buy a brokered CD at Charles Schwab you will need a brokerage account. If you do not have a brokerage account, go to Charles Schwab and click “Open an Account.” You’ll need provide personal and financial information as well as transfer funds after the account is open, and it usually takes a few days before the cash is available to trade or buy brokered CDs.
Once you have a Charles Schwab brokerage account:
- Log in and open the “Trading” tab
- Click on the “CDs” heading
- On the “CDs” page, scroll down to “Maturity” and click the APY link beneath the term length you want to buy. For short term, focus on 1 month, 3 month, 6 month, 9 month and 12 month CDs.
- Select the specific CD you wish to purchase by clicking “buy” on the left column within the table. Make sure to look at the “coupon” column for the yield for that CD and the “maturity” column to see the end date for that CD.
- On this screen you will now see the settlement date. That is when the CD starts. You’ll also enter the dollar amount (Schwab is in thousands so the minimum is $1,000 and can add in increments of $1,000) as well if you want it to auto-roll into a new CD at maturity or keep it as “no” to get the cash back plus interest at maturity. Keep the limit price the same and hit “review order.”
- Review and hit continue
- Order is now placed
- Once your order is complete, you will see the money removed from your cash and the CD in your account.
How Do You Redeem A Brokered CD?
When you are buying a brokered CD, the website will state the date when the CD will mature. As that date gets closer, Charles Schwab will send you a notification that a fixed income security is maturing soon. This serves as reminder only, when the CD matures the cash will be deposited directly into your account. You don’t have to do anything. Sometimes it does take a day or two for the interest to show up in your account.
Are Brokered CDs FDIC Insured?
Most brokered CDs are FDIC-insured up to the maximum limit allowed by law, currently set at $250,000 per depositor, per institution. This insurance protects the principal investment and any accrued interest in case the issuing bank fails. On the website, you can check if the CD you’re interested in buying is FDIC-insured.
Are you charged fees to buy brokered CDs through Charles Schwab?
To see the latest fees Charles Schwab charges for CDs, and all fixed income products, you can see their latest fixed income pricing here.
Why To Buy a Brokered CD at Charles Schwab vs Directly At The Bank Issuer
If you already have an account at the bank issuing the CD, it’s easy to buy the CD directly with them. With CD rates increasing so rapidly this year, I found that many of the CDs with the best yields were at smaller banks I didn’t have a relationship with. Instead of creating a bunch of new accounts with these local banks, I found it easiest to buy these high yield CDs through Charles Schwab. That way, I still only had one banking account, and could see all of the CDs I purchased in one place.
How to Buy Brokered CDs at Charles Schwab Summary
Buying brokered CDs on Charles Schwab is a straightforward process. You have access to a wide range of CDs from different issuers and can see all the CDs you purchased in one place. By following the steps outlined in this guide, you can confidently navigate the platform, select suitable CDs, and have the money directly deposited in your account at time of maturity. Remember to conduct thorough research, assess your investment goals, and regularly monitor your CD investments. With CD rates rising, brokered CDs can be a valuable addition to your portfolio, especially for money you’ll need somewhat soon and you want to earn high interest on it in the meantime.