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.

RELATED TERMS
  1. Yankee CD

    A Yankee CD is a certificate of deposit (CD) that is issued in ...
  2. Variable-Rate Certificate Of Deposit

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

    A savings certificate entitling the bearer to receive an interest ...
  4. Zero-Coupon Certificate Of Deposit ...

    A zero-coupon certificate of deposit (CD) is purchased at a discounted ...
  5. Fixed-Rate Certificate of Deposit

    A fixed-rate certificate of deposit (CD) is an investment instrument ...
  6. Automatic Rollover

    1. The transfer of qualified retirement plan distributions into ...
Related Articles
  1. Investing

    Callable CDs: Check The Fine Print

    These offer higher returns than regular certificates of deposit, but there's a catch.
  2. Investing

    CDs Vs. Inflation: Are They Keeping Up?

    Learn how to determine whether the money invested in certificates of deposit (CDs) can keep pace with the rate of inflation and how you measure inflation.
  3. 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.
  4. Investing

    6 Reasons to Beware of Market-Linked CDs

    Market-linked CDs sound great on the surface, but have a significant downside. Consider the whole picture before you invest.
RELATED FAQS
  1. 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 >>
Hot Definitions
  1. Capital Asset Pricing Model - CAPM

    Capital Asset Pricing Model (CAPM) is a model that describes the relationship between risk and expected return and that is ...
  2. Return On Equity - ROE

    The profitability returned in direct relation to shareholders' investments is called the return on equity.
  3. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  4. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  5. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  6. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
Trading Center