Table of Contents

Brokered CDs: What Are They and How Do They Work?

You can earn more with a brokered CD, but it's a riskier option.

Why You Can Trust CNET Money
Our mission is to help you make informed financial decisions, and we hold ourselves to strict . This post may contain links to products from our partners, which may earn us a commission. Here’s a more detailed explanation of .
courtneyk/Getty Images

If you’re searching for safe places to park your money, a certificate of deposit is worth considering. With some online banks and credit unions paying more than 5% APY (annual percentage yield) on one-year CDs, you’ll also get the guarantee of federal deposit insurance and a higher yield than most savings accounts and money market accounts. However, you don’t have to go to a bank to open a CD. If you’re using a broker or brokerage firm to manage your other investments, you can also explore brokered CDs.

Are brokered CDs safe? Can they help you earn more money than you would in traditional bank CDs? Read on for the essential details to determine whether you should browse brokered CD options.

What are brokered CDs?

A brokered CD is a CD purchased from a brokerage or investment firm rather than a bank or credit union. Like traditional CDs, you deposit money into a brokered CD for a particular period, known as the term, and in exchange, you lock in a fixed interest rate for that term. 

How do brokered CDs work?

In addition to selling CDs individually, some banks and credit unions package up multiple CDs and sell them in bulk to brokerage firms like Fidelity, Vanguard, Schwab and other companies that specialize in investments and financial services. Then, individual customers can opt to buy those brokered CDs.

Brokered CD vs. bank CD

While brokered CDs and bank CDs have plenty in common, there are some nuances to consider when comparing the two options. 

Brokered CDBank CD
How do you open the CD?Through a brokerage firmDirectly from a bank or credit union
How does interest work?Simple interestVaries by bank, but typically compounded daily, monthly or quarterly
How can you access your money CD early?Try to sell the CD on the secondary marketPay an early withdrawal penalty
Can the bank call the CD?In some cases, yesNo
Is your money protected by federal insurance coverage?Yes – as long as the brokerage firm buys CDs from FDIC-insured banks or NCUA-insured credit unionsYes – as long as the issuing bank is part of the FDIC or the credit union is part of the NCUA
How long are the terms?Typically 3 months to 10+ yearsTypically 3 months to 5 years
What is the minimum investment amount?Typically $1,000Varies by bank

Pros and cons of a brokered CD


  • They often have higher yields: Many brokerages offer more attractive interest rates for their CDs than you’ll find with bank-issued CDs. For example, the best three-year bank CD rates are 4.66% APY or lower, but Vanguard’s offers a 5.15% APY. With an initial investment of $10,000, the Vanguard option would pay more than $160 more in interest at maturity.

  • They offer longer terms: While banks and credit unions tend to offer maximum CD terms of five years, some brokered CDs extend out to 10 years or longer.

  • They offer more liquidity: There’s a secondary market for brokered CDs, which allows you to look for someone to purchase your CD if you need the money before maturity. If you need funds from a traditional CD before the term is up, you’ll likely face an early withdrawal fee.


  • Rates aren’t always higher: The biggest selling point for brokered CDs is the potential for a bigger return, but it’s not always a clear win. For example, Fidelity’s one-year CD rates are 5.15% APY -- lower than some of the best one-year CD rates available directly from banks. Do your research and don’t assume that a brokered CD will beat a standard bank CD.

  • Your money may not be protected: The money you invest in a brokered CD is protected only if it’s provided by a bank insured by the Federal Deposit Insurance Corporation or a credit union insured by the National Credit Union Administration. If it’s not, you could lose all your funds if the financial institution fails. Check that your brokerage works with insured institutions to ensure your money will be safe.

  • You need to invest some extra time: The SEC says that brokered CDs “are more complex and may carry more risks than CDs offered directly by banks.” With that in mind, you should take extra time to educate yourself on how a brokered CD works. You should also verify that the broker is a legitimate service provider. There are some actors who call themselves brokers who aren’t officially licensed or certified by state or federal regulators. Make sure you go with a trusted provider with a proven track record.

  • They pay only simple interest: Brokered CDs tend to pay simple interest, meaning interest accrues only on the principal balance. Bank CDs, on the other hand, usually compound interest, meaning you also earn interest on the interest you’ve earned to date.

  • Selling them isn’t always profitable: The secondary market for CDs is like the secondary market for tickets to a concert: If there’s less demand, you could wind up losing money when you try to sell a brokered CD.

  • They’re callable: A brokered CD can be called by the issuing bank. That means the bank redeems the CD before it matures and refunds your investment. You won’t lose your initial investment or any gains earned to date, but you will miss on potential future earnings. Banks recall CDs when interest rates drop to avoid paying higher rates than the investment generates.

Should you choose a brokered CD?

Brokered CDs are best for customers who are comfortable with additional financial jargon and the potential for bigger risks. For example, brokered CDs often promote the benefit of being able to sell them on a secondary market before they mature -- while avoiding any early withdrawal penalties. There’s a catch, though: You could lose money depending on the current market value.

Brokered CDs may also be a good option if you want to simplify your financial life and limit the number of institutions where you hold and invest money. If you’re already managing most of your money at one brokerage, adding a CD to your brokerage account is fairly easy. 

If you prefer simplicity, stick to standard bank CDs. Banks have clear disclosures about their CD offering. Plus, you won’t need to worry about sales fees for trying to offload a CD on the secondary market or the potential for the bank to call the CD before the maturity date. 

Bank CDs are also better bets if you’re looking for more control. While brokered CDs may include callable CDs (which gives the bank more control), some banks and credit unions offer no-penalty CDs. These give you the flexibility to access your cash without paying early withdrawal penalties.

How to buy a brokered CD

If you want to buy a brokered CD, you’ll need to open a brokerage account and set up a link to a bank account to transfer the funds. Once you’ve created one, you can compare the different CD options and term lengths to find the best option for your needs.

Pay close attention to the fine print -- most importantly, whether the CD is protected by FDIC insurance (for banks) or NCUA insurance (for credit unions). You should also find out if the CD is callable to know whether you might need to find a backup plan for the money.


As long as the certificate of deposit is issued by a financial institution protected by FDIC or NCUA insurance, it’s generally as safe as a traditional CD. Make sure you verify that this is the case before buying one.

It’s also important to understand that brokered CDs can be a bit more confusing than standard CDs you open at a bank or credit union. If it’s callable, for example, you might wind up being forced to close it early. You’ll get your money back, but you won’t get the interest earnings you were counting on. Instead, you’ll need to figure out another saving or investment option.

It depends. If the money remains in the account until the brokered CD matures, you should get your principal back, plus interest. However, if you decide to sell it on the secondary market before maturity, you could wind up losing money. 

Yes. All interest on CDs is treated as income by the IRS. Whether you open a CD via a brokerage account or directly with a bank, you must pay taxes on the interest you earn each year. The exception is if you include brokered CDs in an IRA account, which can mean you’ll delay paying taxes until you begin withdrawing the funds.

It depends on the brokerage and the bank you’re comparing. While brokered CDs have historically paid slightly higher rates than CDs available directly from banks, it’s not always the case. Some online banks pay very competitive CD rates right now, so you should compare all your options.

A high-yield savings account is another type of deposit account that offers a higher interest rate than traditional savings and money market accounts. While CDs have a fixed interest rate, savings rates are variable, which means your APY can change at any time. However, you can access money in a savings account at any time. If you need money from a brokered CD before the CD matures, you’ll typically incur an early withdrawal penalty.

Toni Husbands is a staff writer with CNET Money who enjoys exploring topics that promote financial wellness. She began writing about personal finance to document her experience paying off $107,000 of debt, which is detailed in her book, The Great Debt Dump. Previously, she contributed as a freelance writer for websites, including, Centsai and Wisebread. She was also a regular contributor to Business AM TV, and her work has been featured on Yahoo News. Being a part-time real estate investor and amateur gardener also brings her joy.
David McMillin writes about credit cards, mortgages, banking, taxes and travel. Based in Chicago, he writes with one objective in mind: Help readers figure out how to save more and stress less. He is also a musician, which means he has spent a lot of time worrying about money. He applies the lessons he's learned from that financial balancing act to offer practical advice for personal spending decisions.
Advertiser Disclosure

CNET editors independently choose every product and service we cover. Though we can’t review every available financial company or offer, we strive to make comprehensive, rigorous comparisons in order to highlight the best of them. For many of these products and services, we earn a commission. The compensation we receive may impact how products and links appear on our site.

Editorial Guidelines

Writers and editors and produce editorial content with the objective to provide accurate and unbiased information. A separate team is responsible for placing paid links and advertisements, creating a firewall between our affiliate partners and our editorial team. Our editorial team does not receive direct compensation from advertisers.

How we make money

CNET Money is an advertising-supported publisher and comparison service. We’re compensated in exchange for placement of sponsored products and services, or when you click on certain links posted on our site. Therefore, this compensation may impact where and in what order affiliate links appear within advertising units. While we strive to provide a wide range of products and services, CNET Money does not include information about every financial or credit product or service.