Buying CD’s Through a Brokerage Account

As part of my “basic investing plan“, this site describes how to buy CD’s through your brokerage account.

Buying CD’s through your brokerage is the same as buying them through your bank, except that you typically receive a much higher interest rate. When a bank sets up a CD or savings account and markets it to their existing customers, they typically pay their existing customers much lower than the highest rate available in the market.

Since CD’s are completely interchangeable, you can buy a CD from any bank. If the bank is taken over by the FDIC (Federal Deposit Insurance Corporation), you receive your money back plus accrued interest. During the last financial crisis many of my CD’s were redeemed by the FDIC in this manner.

You can select CD’s from the highest yielding bank. As long as the bank is insured by the FDIC and you are not past your insurance limit for that bank (typically $250k, although this can be higher if you look at joint minimums), you are completely insured by the Federal government and there is no risk of default as long as this program exists.

Here are the current yields for new issue CD’s. They will vary slightly but give a good idea of what you can receive over the next 5 years for no risk. New issues are bought at “par” or 100% of value.

CD yields

11/8/22 2.4% (5 years)

11/8/21 2.15% (4 years)

11/9/20 2% (3 years)

11/12/19 1.75% (2 years)

11/18 1.5% (1 year)

In these instances I am recommending “new issue” CD’s because if you buy an existing issue then it gets more complex. You will buy at some price other than 100% of par depending on interest rates and time outstanding and then you will potentially have gains or losses when or if you sell or hold to maturity. Since the differences are slight and the complexity is unneeded, I typically recommend buying new issues only.

If you need to sell the CD to raise cash for a purchase, you can sell them through the brokerage platform. You will receive a slightly higher or lower price depending on current interest rates vs. interest rates at the time you bought the CD. You will also receive a different amount based on accrued interest (because the purchaser will receive the payment, not you).

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