When you purchase CDs from a broker firm, it can be quite a bit different than making the same purchase directly from a bank. While the results of your investment will be quite similar, some details might be different.
Why Buy a CD from a Broker Firm?
There are a number of reasons that you might consider purchasing certificates of deposit from a broker firm vs. visiting your local banking institution. One reason is that you can usually enjoy the benefit of a higher interest rate due to the fact that brokerages have great negotiation power. Also, because they can resell CDs back to the market before the maturation period ends, you can often withdraw your funds early without suffering any penalties.
What to Look for When You Purchase CDs from a Broker Firm
Since the process is slightly different when you purchase CDs from a broker firm, let's explore what you want to look for in the firm and their process:
- Does the firm's commission affect you? Typically, the commission that representatives of the broker firm earn doesn't affect the investors. However, on occasion, you may see that in the long term, you yield to maturity (YTM) was a little lower than it could have been.
- Do they offer more than fixed-rate CDs? Nowadays, brokerages are offering more than just the traditional fixed-rate CD. So when looking for a firm to work with, its good to look for those that have options such as callable, zero, and secondary CDs to help you diversify your portfolio.
- Is the brokerage registered and licensed? Before investing money in any brokerage, it's important to make sure they are properly registered and licensed. To check their status, you can contact your states securities regulator or the Financial Industry Regulatory Authority (FINRA).
It's important that you conduct as much research as possible before working with a broker firm. By learning how investing in certificates of deposits works with them vs. banks, as well as what to look for in these firms, you can feel comfortable that youre making the best decisions possible when you purchase CDs.
