A 90-second read by Anthony Benante: When investing in a Certificate of Deposit (CD), you may have more options than you think. You can purchase a CD at a local bank or you can purchase CDs in your investment accounts (such as a taxable account, IRA or Roth IRA, etc.). These are typically known as Brokered CDs. Even though the CDs you get from the bank and the CDs in your investment accounts are called Certificates of Deposit, you should know that there are differences. In either case, we would recommend that the CDs you invest in are fully covered by FDIC insurance. If you would like to learn more about FDIC insurance coverage, feel free to ask us or you can go online to www.fdic.gov.
Purchasing CDs from your local bank: If you were to purchase a CD from a local bank that is FDIC insured, you would receive interest and would get your principal investment at maturity. If you receive regular statements, the value of your CD would most likely never change because it is not tradeable. If for some reason you wanted access to your funds prior to maturity, you would most likely be subject to a penalty, such as 90 days’ worth of interest (but this should be verified individually). Other factors to consider are that local banks can offer “teaser rates” (rates higher than the market) for CDs to attract deposits, but those rates may not be available after your CD matures. Unless you want to consistently move your money from institution to institution, using time and effort, you will be subject to the rates being offered only by your bank.