A brokered CD is a bank certificate of deposit that you hold in a brokerage account instead of opening it at the bank. Here is how they work, where they differ from a bank CD, and what to check before you place an order.
What a brokered CD is
A bank issues the CD and a brokerage offers it to its customers. The CD sits in your brokerage account next to any T-bills or funds you hold. Interest is usually paid into that account on a set schedule, and at maturity the principal comes back as cash.
FDIC coverage
Brokered CDs from FDIC-insured banks carry FDIC deposit insurance up to the standard limit, $250,000 per depositor, per insured bank, per ownership category. Coverage is counted together with any deposits you already hold directly at the same bank, so check the issuing bank name on each CD. Confirm coverage with the FDIC deposit insurance pages.
How it differs from a bank CD
- Leaving early. A bank CD usually charges an early withdrawal penalty. A brokered CD normally has no penalty, but to exit before maturity you offer it on the secondary market and accept the price a dealer bids, which can be above or below what you paid.
- Callable terms. Some brokered CDs are callable, meaning the bank can end them early, usually when rates fall. Read the call schedule before you place an order.
- Compounding. Most brokered CDs pay simple interest out to your account rather than compounding inside the CD.
- One account, many banks. You can hold CDs from several banks in one brokerage account, which makes a CD ladder easier to manage.
Brokered CDs vs T-bills
CD interest is taxable at the federal, state and local level. Treasury bill interest is federally taxable but exempt from state and local income tax. If you live in a state with an income tax, compare the two on an after-tax basis with the T-bill vs CD after-tax tool, and see current official numbers on rates this week and the FDIC national rate page.
A short checklist
- Issuing bank name and FDIC certificate
- Term and maturity date
- Callable or non-callable
- Interest payment schedule
- Any commission or markup from the brokerage
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Frequently asked questions
Can I lose money on a brokered CD?
If you hold it to maturity you receive principal plus stated interest, subject to FDIC limits. If you exit early on the secondary market, the price can be lower than what you paid.
Do brokered CDs have early withdrawal penalties?
Usually not. Instead, you exit by offering the CD on the secondary market at the price a dealer bids.
Is CD interest exempt from state tax?
No. CD interest is taxable at the state and local level. Treasury bill, note and bond interest is exempt from state and local income tax.
See how we source the data and the guides hub. Educational, not investment advice.