Hello Again and Happy 4th of July Week!
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What to do with extra cash or savings?
We often get the question, “I have extra cash that I may or may not need in the next couple of years but I’m nervous to put it into the stock market, what should I do?”
This is a real question and has been a struggle for a number of years now because savings rates at the bank and certificate of deposit (CD) rates were so low for so long. But that is starting to change, with raising rates brokered CDs are looking like a great option.
What are Brokered CDs?
A Brokered CD is much like a Bank CD in that it is time-based savings product. The difference between the two is that instead of being offered directly from the bank they are purchased and sold on a secondary market through a brokerage account. Here are a few of the Pros and Cons of a Brokered CD.
What are the Pros of Brokered CDs?
There are four advantages to brokered CDs: Terms, Convenience, Liquidity, and Rates.
- Terms: Brokered CDs usually have more options available when it comes to the time and terms of the CD.
- Convenience: Buying multiple bank CDs requires opening accounts from multiple banks. A Brokered CD has the option to keep multiple CDs in one account, even from different banks. And if done correctly, can all be covered by FDIC. Since the limit for FDIC coverage is $250,000 buying multiple brokered CDs from different banks might allow you to go above that limit.
- Liquidity: Traditional Bank CDs require you to hold the funds in the account for the full maturity to avoid early withdrawal penalties. Brokered CDs are bought, and can be sold, to the open market. If you get in a jam, it may be a way to get access back to cash without surrender charges.
- Rates: This is not always the case, but rates can be better from Brokered CDs when compared to traditional CDs. This comes from the ability to shop around, which can lead to higher interest rates.
What are the Cons of Brokered CDs?
There are two main disadvantages to brokered CDs: Liquidity and Callability.
Liquidity: Just as this can be an advantage it can also be a disadvantage because you are not “forced” to hold it to maturity. This may lead to selling it for less than it is worth or selling too soon. We recommend when buying a brokered CD to hold it until maturity.
- Callability: Some brokered CDs have an option where the issuing company may call, or pay back, the brokered CD before the maturity date. This is easily overcome by only looking at non-callable brokered CDs.
How do you buy a Brokered CD?
Simple, give us a call. We will ask you a few questions and get you a great option
With all these things in mind, right now is a great time to look again at your cash management. If you have some extra cash that you don’t want to add to the stock market but would like to get a little better rate of return than you savings account, please let us know. Also, feel free to share this message with family and friends.
Garrett G. Smith
Ascend Investment Partners
Paul M. Norman, CFP®
Senior Financial Advisor
Ascend Investment Partners
214 South Main Street
Logan, UT 84321
175 Historic 25th Street
Ogden, UT 84401
Ascend Investment Partners is not a legal or tax advisor. You should consult with your attorney, accountant and/or estate planner before taking any action.
Ascend Investment Partners did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Ascend Investment Partners or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy.