There are still some attractive yields to be found on certificates of deposits, including from some of the biggest banks in the U.S. For instance, JPMorgan right now is paying out an annual percentage yield of 5.4% on a one-year CD, via Fidelity Investments. Goldman Sachs , Morgan Stanley and Bank of America all have one-year offerings with yields of at least 5%, according to Fidelity’s website . They are what is known as brokered CDs, which are purchased through a brokerage firm like Fidelity, Schwab or Vanguard . While buyers can get bank CDs directly from the institution, they get a wide range of issuer options to choose from when buying through a brokerage firm. That means there may potentially be an opportunity to snag some additional yield. “From our experience, the brokered CD market is more competitive,” said Richard Carter, vice president of fixed income products and services at Fidelity. The firm has some 180 different brokered CDs available at different maturities, he said. Like traditional CDs, brokered CDs are offered in different maturities. They are also insured by the Federal Deposit Insurance Corp. up to $250,000 per depositor , per bank and per ownership category. Like their smaller counterparts, big banks may also offer CDs to raise deposits pretty quickly and may target particular parts of the yield curve, Carter said. However, buyers should be aware of some key differences between brokered CDs and their traditional counterparts. For one, brokered CDs may be callable — meaning the issuing intuition can call the CD before its maturity date. For instance, JPMorgan’s one-year CD, with its 5.4% yield, can be called as early as Oct. 30, according to Fidelity’s website. While you’ll get your initial deposit back, there’s a chance you could earn that interest for a shorter period of time than expected. In the one-year category, Morgan Stanley Private Bank and Bank of America are not callable. Goldman Sachs has two new issue CDs offered — one with a 5.15% rate that is callable as early as July 30 and one with a 5% rate that is not callable. “Where it causes a real problem is on a longer-term CD,” explained Greg McBride, chief financial analyst at Bankrate.com. “You think you locked into a five-year CD and 12 or 18 months later it gets called. You get your money back and have to reinvest at a time when interest rates are lower.” It’s also important to understand your time frame before you buy a CD, whether from a bank or a brokerage firm. With bank CDs, you’ll pay a penalty if you want your money back before maturity. That penalty is stated at the outset when you buy the CD. With a brokered CD, you’ll have to sell it on the secondary market — and you may lose some of your principal. “What you get depends on what another investor is willing to pay for it,” McBride said. “If rates move against you, you can lose big, especially on a longer-term CD.” In addition, you may have to pay a transaction fee. In Fidelity’s case, it is $1 per $1,000 CD to sell your CD on the secondary market. A brokered CD also doesn’t necessarily mean a higher yield, McBride said. He suggests looking at top-yielding bank CDs, which he said tend to be pretty comparable. Those choosing brokered CDs may find it convenient if they already have investments at a specific brokerage firm, so all their accounts are in one place. In addition, for those who who want to invest more than the FDIC limit can buy CDs from multiple issuers. You can also easily build a CD ladder, which staggers maturities, said Carter. “In this world of uncertainty, another way of hedging risk is a ladder,” he said. “Some of the money is out into the future — if rates were to fall you have that locked in,” he added. “If rates were to rise, you have the shorter maturities on the ladder, which gives you the chance — if you want — to reinvest that principal.” Depending on your time frame, you may consider a one-year ladder with CD maturities three months apart, a two-year ladder with CD maturities six months apart, or a five-year ladder, with maturities one year apart, he said.
