DEFINITION of 'Brokered Certificate of Deposit'

A brokered certificate of deposit (CD) is a CD that an investor purchases through a brokerage firm, or from a sales representative other than a bank. Although the bank still initiates the CD, it outsources to firms that aim to locate potential investors. These types of CDs generally command a higher price as they are in a more competitive market.

BREAKING DOWN 'Brokered Certificate of Deposit'

As with all CDs, if held to maturity, the holder of a brokered CD will receive his or her full principal with interest. In general, CDs are savings certificates. While many retail banks offer CDs they are more complex than other financial services like checking and savings accounts. CDs will have a fixed maturity date and fixed interest rate. They can be issued in any denomination aside from minimum investment requirements. A holder of a CD cannot access the funds until the maturity date of the investment. CDs are insured by the FDIC up to $250,000 per individual.

Brokered Certificate of Deposit and Other Forms of CDs

In addition, a brokered certificate of deposit, additional forms of CDs exist. These include the bull CD, bear CD, and Yankee CD.

The bull CD’s interest rate correlates directly with the value of its underlying market index. When someone invests in a bull CD, she or he is guaranteed a minimum rate of return, as well as an additional specified percentage, based on the associated market index. The interest rate a holder of a bull CD receives during the life of the CD increases as the value of the market index increases.

By contrast, a bear CD’s interest rate fluctuates in inverse correlation to the value of its underlying market index. In this scenario, the interest rate paid on the CD increases only if the underlying market index decreases. Investors will select bear CDs primarily for speculating and hedging. For example, if an investor has a long position that is highly correlated to the underlying market index, she or he may choose to invest excess cash in a bear CD, which can offset losses.

Similar to a Yankee bond, a Yankee CD is one that a branch or agency of a foreign bank issues in the United States to American investors. A Yankee CD is denominated in U.S. dollars. Many foreign companies choose to raise capital from U.S. investors by issuing Yankee CDs.

  1. Certificate Of Deposit - CD

    A certificate of deposit (CD) is a savings certificate entitling ...
  2. Yankee CD

    A Yankee CD is a certificate of deposit (CD) that is issued in ...
  3. Promotional CD Rate (Bonus CD Rate)

    A promotional certificate of deposit (CD) rate is a higher rate ...
  4. Callable Certificate Of Deposit

    A callable certificate of deposit is an FDIC insured certificate ...
  5. Variable-Rate Certificate Of Deposit

    A variable-rate certificate of deposit is an investment product ...
  6. Indexed Certificate Of Deposit ...

    A savings certificate entitling the bearer to receive an interest ...
Related Articles
  1. Investing

    How To Earn The Most From CDs When Interest Rates Are Low

    Certificates of deposit might not seem like a good place to keep your money when interest rates are low, but they do offer security and stability. And with laddering and studying promotional ...
  2. Investing

    Getting Certificates of Deposit (CDs) in Emerging Markets: Risks and Rewards

    Learn about the risks and rewards associated with investing in a certificate of deposit (CD) offered by an emerging market and what to consider before buying.
  3. Investing

    CDs vs. Bonds: Which Is the Better Investment?

    When choosing between CDs and bonds, investors who seek to maximize their returns but also want a large measure of safety should consider some key differences.
  4. Managing Wealth

    What Is A CD Ladder?

    Find out how a CD ladder can protect you from interest rate risk.
  5. Investing

    Savings Bonds Vs. CDs: Which Is Better in 2016?

    Understand what a savings bond is, what a CD is and what sets them apart from each other. Learn why a savings bond is the right investment for 2016.
  6. Personal Finance

    The 7 Best Places to Put Your Savings

    You work hard to put your money away for the future, but where should you keep it?
  7. IPF - Banking

    Get the Best Savings Interest Rates For You

    How do you choose between market deposit accounts, CDs and traditional savings accounts?
  1. Can certificates of deposit (CDs) lose value?

    CDs are FDIC insured, so they do not lose face value, though broker-issued CD accounts do carry risks. Read Answer >>
  2. What is considered a good interest rate for a certificate of deposit (CD)?

    Explore the various options available with certificates of deposit and discover how to find the most lucrative rates for ... Read Answer >>
  3. How are yields taxed on a certificate of deposit (CD)?

    Learn how interest earned on a certificate of deposit is taxed and how this may reduce the total return of an investment ... Read Answer >>
Trading Center