What Is a Deposit Broker?

A deposit broker is an individual or firm that facilitates the placement of investors' deposits with insured depository institutions. Deposit brokers offer investors an assortment of fixed-term investment products, many of which yield low-risk returns. An individual or firm may still be considered a deposit broker even if they do not receive a fee or direct compensation. 

Key Takeaways

  •  A deposit broker is a person, company, or organization tasked with placing financial deposits at an insured depository institution on behalf of a third party.
  • A deposit broker can also place these "brokered deposits" with a financial institution with the intent to sell interests in those deposits to a third party.
  • As opposed to a stockbroker, a deposit broker can offer alternative investments, versus just equities, and may not need regulatory approval to market certain securities.

Understanding a Deposit Broker

A deposit broker is similar to a stockbroker but differs in a few key areas. While a stockbroker deals only in equity, a deposit broker can offer alternative investment opportunities. Another significant difference is that stockbrokers must pass the Series 7 exam to sell securities, whereas deposit brokers may not need regulatory approval to market fixed-term securities.

The term deposit broker often refers to an individual or firm that facilitates the placement of investors' deposits with insured depository institutions.

Though "deposit broker" is a broadly defined term, financial institutions and their employees, trustees, and pension plan advisers are notably precluded from the definition.

What Does a Deposit Broker Sell?

Deposit Brokers sell brokered deposits—usually, large-denomination deposits first sold by a bank to a brokerage or deposit broker—who then divide them into smaller pieces for sale to customers. Brokered deposits are one of two types of deposits that comprise a bank's deposit liabilities; the second one is core deposits.

Lending banks value core deposits for their stability. Core deposits monopolize a bank's natural demographic market and offer many advantages to financial institutions, such as predictable costs and a measurement of how loyal their customers are. Specific forms of core deposits include checking accounts and savings accounts made by individuals.

Examples of Deposit Broker

For example, if your lawyer or accountant introduces you to a bank, they are assisting the arrangements of deposits at this bank and are considered deposit brokers. This can be typical of an accountant or lawyer that has a practice, yet offers other financial products to its customers.

A depository institution can be an organization, bank, or other institution that holds and helps in the trading of securities. The term can also refer to an institution that accepts currency deposits from customers.

Banks and Deposit Brokers

By accepting brokered deposits, a bank can access a larger pool of potential investment funds and improve its liquidity. For banks, liquidity is critical to survival. This improved liquidity can give banks the capitalization they need to make loans to businesses and the public. Under Federal Deposit Insurance Corporation (FDIC) rules, only well-capitalized banks can solicit and accept brokered deposits. Adequately capitalized ones may take them after being granted a waiver, and under-capitalized banks cannot accept them at all. Even if a bank is well-capitalized, overuse of brokered deposits can lead to bank failure and losses.