Fidelity Investments' Impressive Cd Collection: 50,000 Options And Counting

Fidelity Investments offers brokered certificates of deposit (CDs) to its customers. These are different from traditional bank CDs as they are issued by banks but are available only to brokerage customers. Brokered CDs are usually issued in large denominations and then divided into smaller ones for resale. They are FDIC-insured and can be traded on the secondary market, making them more liquid than bank CDs. Fidelity offers two types of CDs: standard new-issue CDs and fractional CDs. The minimum investment for the former is $1,000, while for the latter, it is $100. There is no trading fee to purchase a new-issue CD, but there is a $1 fee to sell on the secondary market.

Fidelity offers two types of CDs: standard new-issue CDs and fractional CDs

Fidelity offers two types of brokered certificates of deposit (CDs): standard new-issue CDs and fractional CDs. Brokered CDs are issued by banks for the customers of brokerage firms. The CDs are usually issued in large denominations, and the brokerage firm then divides them into smaller denominations for resale to its customers.

Standard New-Issue CDs

Standard new-issue CDs are sold in $1,000 increments. There is no trading fee to purchase a new-issue CD. There is also no early withdrawal penalty if you decide to liquidate your CD. Instead, you can sell the CD on the broker's secondary market, although there is a fee of $1 per CD for doing so. Interest rates on brokered CDs can fluctuate daily, so your CD may be worth less than its original value on the secondary market, which means you may get less than your original investment if you decide to sell.

Fractional CDs

Fractional CDs differ from standard new-issue CDs by offering lower minimums—each CD starts at $100. There is no fee to purchase a fractional CD, but the same trading fee and potential risks apply as with new-issue CDs if you decide to sell. Your ability to sell your CD on the secondary market depends on whether there are investors interested in buying it. As a result, there is no guarantee that you'll be able to sell your CD when you want to, which increases your liquidity risk compared to a bank CD.

Brokered CDs are issued by banks for customers of brokerage firms

Brokered CDs are a safe investment option as they are FDIC-insured. The FDIC insurance coverage limit is $250,000 per account owner, per issuer. This coverage limit was made permanent in 2010. Brokered CDs offer greater flexibility in terms of maturity periods, ranging from as little as three months to as long as 20 years. This allows investors to choose between high liquidity and stability.

Brokered CDs also offer the advantage of higher returns. At the time of writing, Fidelity is offering 4.6% APY on brokered CDs with term lengths between nine and 18 months. This is higher than the APY offered by traditional bank CDs, such as the First National Bank of America CD, which earns 4.4% APY.

Another benefit of brokered CDs is that they can be purchased from different issuing banks, allowing investors to expand their FDIC protection beyond the $250,000 limit in a single account. Additionally, brokered CDs can be traded on the secondary market, meaning they don't have to be held until maturity. This provides greater liquidity compared to bank CDs, which typically have early withdrawal penalties.

However, it is important to note that brokered CDs also come with certain risks. For example, they may have callable features, where the issuing bank can redeem the CD before maturity. In this case, the investor would receive their principal and accrued interest but may miss out on potential future earnings.

Overall, brokered CDs are a good option for those looking for more flexibility and higher returns than traditional bank CDs. They are also suitable for those with more than $250,000 to deposit, as they can purchase multiple CDs through one brokerage account and have all their funds covered by federal insurance.

Brokered CDs are generally more liquid than bank CDs

Brokered CDs are also more liquid because they offer more flexible terms than bank CDs. While a typical bank CD has a term length of between three months and five years, brokered CDs can have terms of up to 20 or even 30 years.

The liquidity of brokered CDs also allows investors to consolidate multiple CDs in a single brokerage account. For example, investors can purchase brokered CDs from several different banks and house them all in one brokerage account, providing a wider variety of options and greater convenience.

However, the liquidity of brokered CDs can also be a disadvantage. It can make it easier for investors to make mistakes, particularly if they buy a long-term brokered CD and then have to sell it on the secondary market after a few years of rising interest rates.

Fidelity CDs can be sold on the secondary market before maturity

Brokered CDs are issued by banks for the customers of brokerage firms. The brokerage firm divides the CDs, which are usually issued in large denominations, into smaller denominations for resale to its customers. Brokered CDs are FDIC-insured, but the insurance only covers the principal amount of the CD and any accrued interest.

Fidelity offers two types of CDs: standard new-issue CDs and fractional CDs. New-issue CDs are sold in $1,000 increments, while fractional CDs have a minimum investment of $100. There is no trading fee to purchase a new-issue CD, but there is a $1 fee per CD to sell on the secondary market.

It's important to note that the value of a brokered CD sold before maturity will fluctuate based on size, time remaining before maturity, and the current interest rate environment. If interest rates rise, the market price of outstanding brokered CDs will generally decline, creating a potential loss if you decide to sell on the secondary market.

Fidelity CDs are FDIC-insured

Fidelity offers brokered CDs, which are purchased through a broker but issued by a bank. Brokered CDs allow investors to buy CDs from multiple banks in one place, potentially expanding their FDIC coverage. Fidelity investors can typically see around 50 to 100 new issue offerings and up to 2,000 secondary offerings at any given time.

When purchasing a brokered CD through Fidelity, investors may also take advantage of the Auto Roll Program, which helps maintain an income stream by reinvesting the maturing principal into multiple CDs of varying maturities.

It is important to note that while brokered CDs are similar to bank CDs, there are some key differences. Brokered CDs may have more flexibility in terms of selling before maturity and transferring between brokerage firms. However, they also come with the risk of limited liquidity in the secondary market and potential drawbacks associated with selling before maturity. Additionally, brokered CDs require researching both the issuing bank and the legitimacy of the brokerage firm.

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