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A brokered CD is a CD that’s sold by a brokerage firm or a deposit broker (an individual that can place financial deposits in an institution on behalf of a third party), rather than a bank. Brokered CDs may offer higher rates than traditional CDs sold at a bank, but they may also entail greater risk for investors.

Before investing in brokered CDs, it’s important to understand how they work, how they differ from traditional CDs, and the potential pros and cons of these accounts.

What Is a Brokered Certificate of Deposit?

A certificate of deposit is a type of savings account that allows you to deposit money and earn interest over a set time period called the term, which is usually a few months to five years. When a traditional CD reaches maturity, you can withdraw the principal plus interest, or roll it over to another CD. Traditional CDs are generally FDIC insured.

A brokered CD is a CD that’s offered by a broker or brokerage firm that’s authorized to act as a deposit broker on behalf of an issuing bank. These CDs often function more like bonds and they may be sold on the secondary market. Brokered CDs tend to be FDIC insured — as long as the CD was bought by the broker from a federally-insured bank.

What is a brokered CD in simpler terms? It’s a CD you buy from a brokerage. A deposit broker buys the CDs from a bank, then resells them to investors. Brokered CDs are held in a brokerage account. They can earn interest, but instead of only being static investments that you hold until maturity like traditional CDs, you can trade brokered CDs like bonds or other securities on the secondary market.

Compared to a standard CD, a brokered CD may require a higher minimum deposit than for a traditional bank CD. The trade-off, however, is that brokered CDs may potentially offer higher returns than you could get with a regular CD.

How Brokered CDs Work

To buy a brokered certificate of deposit, you first need to find a deposit broker that offers them. Banks can issue CDs specifically for the customers of brokerage firms. These CDs may be issued in large denominations, say several million dollars. The brokerage would then break that large CD into smaller CDs to offer to its customers.

You could buy a brokered CD, depositing the minimum amount required or more. The brokered CD then earns interest, with the APY typically corresponding to the length of the maturity term. While longer terms typically earn higher interest rates, currently, short term CDs are offering higher rates because banks believe the Federal Reserve may cut the interest rate in the future. For example, you might be offered a 12-month brokered CD earning 5.40% or a 24-month brokered CD that yields 5.25%.

Ordinarily, you’d have to keep the money in your CD until the CD matures (if you withdraw the funds before the CD matures, you could face an early-withdrawal penalty). You could then roll the original deposit and interest into a new CD or withdraw the total amount.

With brokered CDs, on the other hand, you have the option to sell the CD on the secondary market before it matures.

Examples of Brokered CDs

Many online brokerages offer brokered CDs, including Fidelity, Vanguard and Charles Schwab, to name just a few. Here are the rates on some brokered CDs, as of late May 2024.

Vanguard: Up to 5.50% APY for a 10- to 12-month brokered CD

Fidelity: Up to 5.40% APY for a 6-month brokered CD

Charles Schawb: Up to 5.51% APY for a 3-month brokered CD

Advantages of a Brokered CD

Brokered CDs can offer several advantages, though they may not be the best option for every investor. Here are some of the potential benefits of a brokered certificate of deposit.

More Flexibility Than Traditional CDs

Brokered CDs can offer more flexibility than investing in bank CDs in the sense that they can have a variety of maturity terms, so you can choose ones that fit your needs and goals. You might select a 90-day brokered CD, for example, if you’re looking for a short-term investment or choose one with a 2-year maturity if you’d prefer something with a longer term. It’s also possible to purchase multiple brokered CDs issued by different banks and hold them all in the same brokerage account for added convenience.

Easier to Get Money Out Early on the Secondary Market

With a standard CD, you’re more or less locked in to the account until it matures. (While you could take money out early if your bank allows it, it’s likely you’ll pay an early withdrawal penalty to do so. This penalty can reduce the amount of interest earned.) Brokered CDs don’t have those restrictions; if you need to get money fast then you could sell them on the secondary market, effectively cashing out your principal and interest gains — without a penalty.

Higher Yields Than Standard Bank CDs

Deposit brokers that offer brokered certificates of deposit can use the promise of higher interest rates to attract investors. Rather than earning 1.00% on a CD as you might at a bank, you could potentially earn 5.00% or more with a brokered CD. If you’re seeking higher returns in your portfolio with investments that offer greater liquidity, brokered CDs could hit the mark.

You may also get a higher yield from a brokered CD versus a bond, with greater liquidity to boot.

Potential to Make Profit Once It Reaches Maturity Even If Interest Rates Fall

Interest rates for brokered CDs are locked until maturity. So even if rates fall during the maturity period, you could still profit when you sell the brokered CD later. As a general rule, shorter-term brokered CDs are less susceptible to interest rate risk than ones with longer terms.

Disadvantages of a Brokered CD

Brokered CDs can have some drawbacks that investors need to know about.

Long-Term Brokered CDs Expose Investors to Interest Rate Risk

As mentioned, the longer the CD term the more exposure you have to interest rate risk. Brokered CD prices are subject to fluctuations on the secondary market. If interest rates rise, this usually has an inverse effect on the market price of existing brokered CDs. That means if you were to sell those CDs before maturity, you run the risk of getting less than what you paid for them.

Different Risk When Interest Rates Fall

You can also run into a different type of risk when rates are dropping if your brokered CDs are callable. A callable CD means the issuing bank can terminate or call the CD prior to maturity, similar to a callable bond. Callable brokered CDs can be problematic when rates drop because you’re forced to cash in your investment. In doing so, you’ll miss out on the full amount of interest you could have earned if you’d been able to hold the CD to maturity.

Temptation to Sell May Be Costly

The early withdrawal penalty associated with bank CDs actually serves an important purpose: It keeps you from taking money out of your CD early. Since brokered CDs don’t have this penalty, there’s nothing stopping you from selling your CDs on the secondary market whenever you like. That means it’s easier to cash out your investment, rather than sticking with it, which could cost you interest earnings.

Comparing Brokered CDs to Other CDs

When deciding whether or not to invest in a brokered CD, it can be helpful to compare them to other types of CDs to see how they stack up.

Brokered CD vs Bank CD

Bank CDs are typically purchased from a bank. They are purchased for a set period of time and must be held until maturity. If you want to cash out the CD early you will generally have to pay an early withdrawal penalty.

Brokered CDs are purchased from a deposit broker or brokerage house. They don’t have early withdrawal penalties so you can sell them on the secondary market if you choose to do so.

Brokered CD vs Bull CD

A bull CD is a CD that offers investors an interest rate that’s tied to an index or benchmark like the S&P 500 Index. Investors are also guaranteed a minimum rate of return. Bull CDs can also be referred to as equity-linked or market-linked CDs.

Brokered CDs earn interest but the rate is not tied to a market index. Instead, the rate is fixed for the maturity term.

Brokered CD vs Bear CD

Bear CDs are the opposite of bull CDs. With this type of CD, interest is earned based on declines in the underlying market index. So in other words, you make money when the market falls.

Again, brokered CDs don’t work this way. There is no index correlation; returns are based on the interest rate assigned at the time the CD is issued.

Brokered CD vs Yankee CD

Yankee CDs are CDs issued by foreign banks in the U.S. market. For example, a Canadian bank that has a branch in New York might offer Yankee CDs to its U.S. customers. Yankee CDs are typically suited to higher net worth investors, as they may require $100,000 or more to open. Unlike brokered CDs, which have fixed rates, a Yankee CD may offer a fixed or floating rate.

This chart offers an at-a-glance comparison of the CDs mentioned above and how they work.

How to Buy a Brokered CD

If you’d like to buy a brokered CD, you’ll first need to find a brokerage that offers them. You can then open a brokerage account, which typically requires filling out some paperwork and verifying your ID. Most brokerages let you do this online to save time.

Once your account is open, you should be able to review the selection of brokered CDs available to decide which ones you want to purchase. When comparing brokered CDs, pay attention to:

•   Minimum deposit requirements

•   Maturity terms

•   Interest rates

•   Fees

Also, consider whether the CD is callable or non-callable as that could potentially affect your returns.

Are Brokered CDs FDIC Insured?

Brokered CDs are generally FDIC-insured if the bank issuing them is an FDIC member. The standard FDIC coverage limits apply. Currently, the FDIC insures banking customers up to $250,000 per depositor, per account ownership type, per financial institution. You have to be listed as the CD’s owner in order for the FDIC protection to kick in.

There is an exception if brokered CDs function more like an investment account. In that case, you would have no FDIC protection. The FDIC does not consider money held in securities to be deposits and encourages consumers to understand where they’re putting their money so they know if they’re covered or not.

However, it’s possible that you may be covered by the Securities Investor Protection Corporation (SIPC) if a member brokerage or bank brokerage subsidiary you have accounts with fails.

Are Brokered CDs Better Than Bank CDs?

Brokered CDs do offer some advantages over bank CDs, in terms of flexibility, liquidity, and returns. You’re also free from withdrawal penalties with brokered certificates of deposit. You could, however, avoid this with a no-penalty CD.

What is a no-penalty CD? Simply put, it’s a CD that allows you to withdraw money before maturity without an early withdrawal fee. Some banks offer no-penalty CDs, along with Raise Your Rate CDs and Add-On CDs to savers who want more than just a standard certificate of deposit account.

Here’s something else to keep in mind. You’ll typically need more money to invest in brokered CDs vs. bank CDs. And you’re taking more risk with your money, since brokered CDs are more susceptible to market risk and interest rate risk.

Bank CDs, by comparison, are generally lower-risk investments.

When to Consider Brokered CDs Over Bank CDs

You might choose a brokered CD over bank CDs if brokered certificates of deposit are offering competitive rates and you plan to hold the CD until maturity. Even if rates were to rise during the maturity period, you could still realize a gain when it’s time to cash the CD out.

Paying attention to interest rates can help you decide on the right time to invest in a brokered certificate of deposit. Also, consider the minimum investment and any fees you might pay to purchase the CD.

When to Consider Bank CDs Over Brokered CDs

You might consider bank CDs over brokered CDs if you’d prefer to take less risk with your money. CDs are designed so that you get back the money you put into them, along with the interest earned. Typically, the only time you might lose money from a bank CD is if you cash it out early and have to pay an early withdrawal penalty.

Bank CDs may also be more attractive if you don’t want to tie up your money in a single brokered CD. For example, instead of putting $10,000 into a single brokered certificate of deposit you might spread that out across five or six bank CDs with different maturity dates instead.

This is called CD laddering. Creating a CD ladder can provide some flexibility, since it may be easier to avoid early withdrawal fees if a maturity date is always on the horizon. You could also use a CD ladder to capitalize on rising rates by rolling CDs over once they mature.

Finally, keep in mind that buying CDs is not the only way to save money and potentially help it grow. For instance, if you’re committed to saving, and you want to earn more interest than you’d get with the standard savings account, you might also want to consider opening a high-yield savings account. Taking some time to explore your options can help you determine the best savings vehicles for your needs.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Can you lose money on a brokered CD?

It’s possible to lose money on a brokered CD if you sell it prior to maturity after interest rates have risen. Higher rates can cause the market price of brokered CDs to decline, meaning you could end up selling them for less than what you paid.

Are brokered CDs a good idea?

While it depends on your specific situation, a brokered CD might be a good idea if you understand the risks involved. Brokered certificates of deposit can offer the potential to earn higher interest rates than regular CDs. But it’s also possible to lose money with this type of CD. Be sure to weigh the pros and cons.

What is the difference between a brokered CD and a bank CD?

A brokered CD is issued by a bank and sold by a brokerage. Bank CDs are issued by banks and offered directly to their customers. Brokered CDs may have higher minimum deposit requirements and offer higher interest rates. They are also typically more flexible than bank CDs because you can sell them on the secondary market, while you are required to hold onto bank CDs for the full term or risk paying an early withdrawal penalty.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

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3.30% APY
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

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SOBK-Q224-1874471-V1

Discount brokers make it possible for investors to buy and sell securities, without paying the higher fees associated with a full-service brokerage. Using a discount brokerage could make sense for investors who are comfortable making trading decisions without the help of an investment professional.

The rise of discount brokerage firms has made investing more accessible for a wider variety of people. Discount stockbrokers can offer both tax-advantaged and taxable investment accounts. It’s possible to build a portfolio with a discount broker that includes different types of investments, including stocks, exchange-traded funds (ETFs) and other securities.

What Is a Discount Broker?

Discount brokers offer investors access to lower-cost securities trading. Many discount brokerage firms operate online or via mobile investment apps. They’re often geared to the DIY investor who’s interested in self-directed trading.

Some of the characteristics of discount brokers can include:

•   Investment selection that can include stocks, ETFs, mutual funds, bonds

•   Low or zero commission fees to trade stocks and exchange-traded funds (ETFs)

•   Fractional share trading

•   Low minimum investment thresholds

•   Investor-guided trading

While discount brokers offer a flexible way to invest they’re still subject to government regulation. Discount brokerage firms must register with the Securities and Exchange Commission (SEC). They must also belong to the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corp (SIPC).


💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

History of Discount Brokers

Discount brokerages have grown in popularity in recent years but online trading has its roots in the 1980s.

In 1984, Charles Schwab introduced The Equalizer, the first DOS-based portfolio management and trading tool. Shortly after, competitors entered the market, including TeleBroker, the first phone-based keypad trading application, and StreetSmart, a PC-based trading software program.

In 1992, E-Trade became the first online brokerage service provider. By 1995, E-Trade generated 80% of its revenues from trading commissions and the number of new discount brokerages joining the fray continued to grow. Larger firms, such as Charles Schwab and Fidelity began offering discount broker services. Over the last decade or so, they’ve been joined by newer startups.

Along with the introduction of new online trading platforms and expanded investment options, the discount broker industry has evolved from a pricing perspective. Many, if not most brokerages now offer commission-free trades, for instance.

How Do Discount Brokerages Work?

Discount stock brokerages put the investor in the driver’s seat. You decide which type of account to open with a discount broker. This may be a tax-advantaged account, such as a traditional or Roth Individual Retirement Account (IRA). Or you may choose to open a taxable brokerage account instead.

Once you open your account, you can then decide how to allocate it and how much to invest.

Recommended: Active vs Passive Investing: What You Should Know

With a discount brokerage, you decide how much to invest in each fund or stock. You also have control over how long you hold those investments and when you decide to sell. When you’re ready to execute trades, you may pay low or no commission fees to do so.

Discount brokerages can also open the door to new investment opportunities, beyond stocks or ETFs. For instance, you may be interested in investing in IPO stocks. With a discount brokerage account, you may have tools on hand to help you understand how the IPO process works and how companies set an IPO price. You can then compare IPOs and decide whether you want to invest, based on your investment goals and risk tolerance.

Discount brokers work well for newer investors and more advanced investors alike. They’re not as well suited for venture capitalists or investors with large portfolios who might be interested in crowdfunding options for investing or investors who want access to things like hedge funds and private equity.

Full-Service Brokers vs Discount Brokers: Key Differences

Brokerage firms help investors to execute trades of stocks and other securities. There are two main types of brokers to choose from: full-service and discount brokers.

Full-service Brokerages

Full-service brokerages assist clients with making trades. But they can also provide other services, including offering investment advice. For instance, a broker might recommend specific stocks or mutual funds to invest in. In exchange for this advice, investors pay fees on top of the commissions they may pay to complete trades.

Discount Brokerages

A discount brokerage differs in the scope of services provided and the fees investors pay. With discount stockbrokers, investors receive little to no direct personalized financial advice or analysis from investment professionals. Instead, it’s up to the investor to decide which securities to buy or sell.

Discount brokerage firms are effectively a link between investors and the market, as they help to carry out trade transactions. But they don’t have the higher fees associated with full-service brokerage firms.

Pros and Cons of Working With a Discount Stock Broker

Choosing a discount broker in place of a full-service broker can offer both advantages and disadvantages. While full-service brokers have a longer track record, discount brokers are making it easier for a broader group of investors to gain entry to the market.

Whether using a discount broker makes sense depends on what you need from a brokerage and what you’re willing or able to pay to build a portfolio. Here’s an overview of the main pros and cons to consider when comparing discount stockbrokers against a full-service option.

Pros of Using a Discount Broker

•   Cost. Arguably, the best reason to consider discount brokers in lieu of full-service brokers is cost. Discount brokers charge lower commission fees to trade, and you’re not paying additional costs for their professional investment research or advice since you’re responsible for making investment decisions.

•   Convenience. Discount stock brokerages make it easy to invest from virtually anywhere, since you can execute trades online or via mobile apps. If you come across a buying opportunity, for example, you can log in and complete the transaction in minutes without having to connect with a human broker first.

•   Variety. Another advantage of using a discount stock broker is the selection of investments to which you have access. That may include not only stocks, mutual funds, ETFs and bonds but you may also be able to buy IPO stock, commodities, or options. Discount brokers make it easier to build a diversified portfolio in one place, with minimal costs.

•   Self-directed trading. If you prefer making investment decisions yourself, a discount brokerage account allows you to do so. You can choose when to buy or sell and how much of your portfolio to allocate to one security versus another.

Cons of Using a Discount Broker

•   No access to professional advice. While discount stockbrokers can be cost-friendly, they’re typically missing one big thing: professional advisors to guide you through the investment process and discuss potential investment risks. Whether this is a con for you depends on how comfortable you are charting your own course with investing.

•   Customer support. Every discount brokerage is different in terms of the level of customer service and support they provide. Some may be more helpful than others, which is something to consider when choosing a discount broker.

•   Not fee-free. While many discount brokers charge $0 commissions to trade U.S. stocks and ETFs, that doesn’t mean there are no fees for trading. You may pay fees to trade mutual funds, for example. Or the brokerage may charge an extra fee if you need to complete a trade by phone.

•   Some limits: While discount brokerages give investors access to many types of investments, they don’t typically offer access to some riskier investments, such as hedge funds or crowdfunding.

What to Look for When Choosing a Discount Brokerage to Work With

If you’re interested in opening a brokerage account, researching your options is the first step. While picking the right brokerage won’t guarantee returns, it can make it easier for you to manage your portfolio and focus on your investments. When comparing discount brokers, here are some of the most important things to keep in mind.

•   Cost. First, consider what you’ll pay to trade stocks and other securities at a particular brokerage. Also, be sure to check the full fee schedule to see what additional trading or account fees may apply.

•   Investment selection. Next, consider what investments you can add to your portfolio with a particular discount stock broker. Some discount brokers may not offer certain options.

•   Minimum investment. Depending on where you are on your investing journey, you may have a lot of money or a little to start trading. So consider the minimum investment required to open an account at different discount brokerage firms.

•   User experience. If you’re going to be making trades online or via a mobile device, it’s important that the platform you use be easy to navigate. Check out websites and mobile apps for different discount brokers to see how they compare in terms of features and ease of use.

•   Research tools. Discount stock brokerages may offer research and analysis tools to help you construct your portfolio. Consider what types of tools, (i.e. tickers, stock simulators, etc.) may be available to help with your investment decision-making.

•   Customer support. Look at what type of customer support is available to help investors with a particular discount broker. The more ways you can communicate, such as email, by phone or live chat, the easier it may be to get help managing your account when you need it.

•   Reputation. Finally, consider how well a discount broker stands out compared to the competition. Does it have a great reputation for low-cost trading, for example? Has it won any major industry awards? What are investors saying about the brokerage? Looking at a discount stockbroker’s overall reputation and track record can help decide if it’s a good fit.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

Discount Brokers Make Investing Affordable

Opening an account with a discount broker can be a first step toward growing wealth. Because they’re generally a low-cost way to invest, you’re able to preserve more of your investment returns over time. These days, most brokers have had to adjust to account for discount brokers in the market, which is generally a good thing for investors.

But remember that discount brokers have their pros and cons, and that investors would do well to do some research before picking a broker. Each broker won’t be the right fit for each investor, so again, take the time to look into potential options before taking the plunge.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.