bank rates

Protection When Buying Brokered CDs

hands putting puzzle pieces togetherWe wrote earlier in May about how brokered CD rates have improved.

Now the FDIC is out with some practical tips on how to protect yourself when buying certificates of deposit from a broker. This commonsense advice is available in the spring edition of FDIC Consumer News.

Purchasing a brokered CD isn’t the same as investing in a certificate from your corner bank. Follow these 3 tips and you’ll help protect your investment.

Tip 1. Use a reputable deposit broker.

The brokered deals we write about typically are offered by large financial services companies with a big online presence, like Fidelity and Vanguard.

But if you see an offer from a smaller firm or from someone you don’t know, the FDIC says you should first do your own background check by contacting the Financial Industry Regulatory Authority (www.finra.org), the Better Business Bureau (www.bbb.org) and your state’s consumer protection office (www.consumeraction.gov/state.shtml).

Tip 2. Watch out for unusually high rates.

From the FDIC: “Some unscrupulous brokers advertise above-market rates on CDs solely as a ploy to get a consumer in the door. They then try to sell investment products that are not FDIC-insured and not in the consumer’s best interest.”

Before you jump at a high interest rate, compare the offer with the top nationally available bank deals on our CD Rates Leaderboard and our list of the highest CD rates at credit unions and local banks.

If the brokered CD deal you are contemplating pays considerably higher than these rates, be wary.

As for brokered CD rates themselves, you should familiarize yourself with what the major players offer. In mid-May, for example, we wrote about a couple of 10-year brokered CDs that pay between 2.25% and 2.35%.

Tip 3. Make sure the certificate is fully insured.

The broker should name the bank in which your deposit will be made, and then you should ensure that the bank is federally insured. The FDIC says you can call 877-275-3342 or visit research.fdic.gov/bankfind to verify the bank’s insurance status.

Brokered CDs are usually registered in the name of the broker or its affiliate bank, which means customers need to contact the firm with any questions or concerns. And if the issuing bank fails, the brokerage firm will be in charge of getting your money back.

For more information, read about the basics of brokered CDs or go to fdic.gov/consumers/consumer/index.html

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