bank rates

Brokered CDs: Yield Versus Convenience

Yields on brokered CDs are often quite low.For me, the most perplexing aspect of brokered CDs is their generally uncompetitive yields.

I understand that banks compensate for the placement fees they pay brokers by offering lower rates than they’d offer on CDs opened directly.

But why do investors find these lower rates acceptable?

Consider Fidelity Investment’s listing of new-issue CDs this St. Patrick’s Day.

There, I found five banks located in or near the northern Illinois area where I grew up, each offering 12-month CDs bearing 0.25% annual interest, payable at maturity.

That same day,’s site average for 12-month CDs was 0.67% APY; the national average, 0.34% APY.

The Fidelity 1-year rate leader (tied with Beal Bank) was Discover Bank, offering 0.35%.

I suppose Discover should be congratulated for beating the national average.

But I could have opened a 12-month Discover CD directly, on its website, with a 0.90% APY!

Discover’s longer-term brokered CDs weren’t much better.

The bank’s 2-year brokered CD carried a 0.60% rate versus 1.15% APY for a 2-year CD on the Discover website. The 5-year Discover brokered CD offered 1.60%, compared with 1.75% APY for its direct counterpart.

Now, why would anyone buy a CD through a broker when an online CD of the same bank, with the same maturity, is available directly at a higher rate?

I guess the principal attraction of brokered CDs is convenience.

It’s easier and less time-consuming to buy brokered CDs of multiple banks through Fidelity than to open CDs directly with each of those banks.

It’s also easier to keep track of them once established.

And perhaps some people think, with every bank’s interest rates so low anyway, why bother going from one to another chasing fractional percentages of yield?

That’s understandable.

But I haven’t succumbed to this thinking yet.

I’m still willing to go to the trouble of dealing with banks (and credit unions) directly to get that extra yield, however miniscule it seems.

(It helps that I’m retired and have lots of free time.)

But I don’t ignore brokered CDs.

In fact, I purchase them when I find an institution, like Goldman Sachs Bank USA or GE Capital Retail Bank, which doesn’t allow me to open CDs directly but is offering competitive rates for the maturities I’m seeking.

I didn’t find any of those CDs at Fidelity on St. Patrick’s Day.

But I’ll check again another day.

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