A brokered CD is a certificate of deposit issued by a bank but bought, held and sold through a brokerage account instead of opened at the bank itself. The bank owes the money; the brokerage, or a sub-custodian it appoints, typically holds the certificate and keeps the record of which part of it is yours.
That split changes how it is insured, how you leave it early, how interest arrives and what protects you if the brokerage fails. This page prints no market rate and names no bank or brokerage; where it describes brokerage practice, it relies on two large brokerages' own CD pages and disclosures, read in September 2026.
How a brokered CD is put together
Most people buy CDs directly from banks, the SEC notes, but "many brokerage firms and independent salespeople also offer CDs"; it calls them deposit brokers. The mechanics were set out by NASD, FINRA's predecessor, in a 2002 notice FINRA still publishes. The bank issues a master CD representing a number of individual CDs, "each with the same denomination"; FDIC insurance attaches to those individual CDs; and the broker, or a sub-custodian it appoints, holds the master CD and records each customer's share. In that structure you hold no certificate and no account at the bank in your own name.
A deposit broker "can sometimes negotiate a higher rate" by promising a bank a volume of deposits, the SEC says. Whether a given brokered CD pays more than a certificate opened at a bank is a question for that day's offers and the national averages.
FINRA cautions that "although most brokered CDs are bank products, some may be securities, which won't be federally insured", so the letters CD on a brokerage screen do not prove a deposit. And terms can run long: the SEC staff's 2023 investor bulletin on brokered CDs says maturities "may range from six months to thirty years".
New issues and the secondary market
A new issue is a certificate the bank is offering for the first time; one large brokerage sells them at face value, "which is $1,000 for most CDs". A secondary-market CD is one an earlier buyer is selling, a trade, in the other brokerage's words, "with another market participant, not the issuing company or agency". At both, the standard unit is $1,000 of face value. Both say a new issue costs the buyer no commission or trading fee, and that the broker may be paid by the issuing bank instead; buying on the secondary market carries a charge at both.
A secondary CD costs whatever the market sets, above or below face. Both brokerages say a premium paid over face value is not FDIC-insured: the FDIC insures principal and accrued interest, not what you paid another investor.
The SEC staff bulletin says brokered CDs usually pay at regular intervals and, "unlike CDs purchased directly from a bank", generally pay simple interest; to earn interest on it, "you must reinvest these funds in another account". Both brokerages' own CD pages also say their CDs pay simple interest, with each payment landing in the account's cash position. APR vs APY shows what compounding adds to a headline rate. By default, neither brokerage renews a CD; at maturity, one says, the principal and interest go into the account as cash.
Is a brokered CD FDIC insured?
A brokered CD that is a deposit at an FDIC-insured bank is covered through what the FDIC calls pass-through coverage, and the FDIC names "brokers who offer brokered CDs" among the third parties in such arrangements. Its processing guide for deposit brokers says custodial deposits a broker holds for clients are covered "the same as if the funds had been deposited directly by the broker's clients". That holds only if three conditions are met, and the FDIC decides whether they are when the bank fails:
- The bank's records expressly disclose the relationship, often through account titling showing the account is held as agent or for the benefit of others.
- Your identity and ownership interest can be established from the bank's records or from records kept by the broker, or by someone keeping them on its behalf.
- You, not the broker, actually own the funds.
If they fail, the money is insured as the broker's, "combined with all other deposits in the broker's name, and insured to the broker for up to $250,000". If they hold, the limit is the usual $250,000 per depositor, per insured bank, per ownership category, principal and accrued interest together.
Buying through a broker adds two risks. The FDIC does not license or register deposit brokers, and if a broker fails to place your money in a CD at an FDIC-insured bank, it is not FDIC-insured. And after a failure, broker-placed deposits may need "additional time" while the FDIC determines coverage; it withholds payment on an account until all its owners are identified and the documents it requires are submitted.
It adds to your other deposits at the issuing bank
A deposit insured on a pass-through basis is added to whatever else you hold at the same bank in the same ownership category. The FDIC's guide for deposit brokers works the case. John Doe holds $120,000 at a failed bank through one broker, $125,000 through a second and $50,000 deposited directly. The FDIC's system groups the three, shows $295,000 in the single ownership category, and "John is only insured for $250,000"; the other $45,000 is uninsured. No single account was over the limit, and the second broker added no coverage.
The SEC warns about the everyday version: a broker may place your money at a bank where you already hold CDs or other deposits. Both brokerages' disclosures make you "responsible for monitoring the total amount of deposits that you hold with any one Issuer, directly or through an intermediary". The FDIC insurance page covers the ownership categories and the two-brands-one-charter trap, which catches brokered CDs too.
Getting out early usually means selling
A bank CD can usually be left early by paying the bank's penalty, a contract term the penalty page prices. A brokered CD is generally sold instead: the SEC staff bulletin says brokered CDs "generally do not have early withdrawal penalties like CDs purchased directly from a bank" and can generally be sold on a secondary market, "subject to market conditions".
Generally cuts both ways. The SEC's older CD alert says a sole owner "may be able to pay an early withdrawal penalty to the bank that issued the CD", while a CD shared with other customers needs a buyer. Nor is the market guaranteed. Brokers "are not obligated to maintain a secondary market", NASD told firms in 2002; it may be limited, and the value on your statement is an estimate. The SEC staff bulletin adds that, depending on market conditions, some may have no secondary market at all, and that a broker may charge a fee to sell. NASD also told firms not to promote a brokered CD as free of early-withdrawal penalties "unless the issuer guarantees redemption of the full face value": no penalty is not the same as no cost.
What a rate rise does to the price (illustrative rates)
When rates have risen, the SEC says, "there may be less demand for your lower-yielding CD", and you "would have to sell the CD at a discount and lose some of your original deposit". On illustrative numbers only: $10,000 of face value paying an illustrative 4.00% simple interest, $400 once a year, sold on an interest date. The method: the price is the present value of what is left, each remaining $400 and the $10,000 at maturity, discounted yearly at the illustrative rate a new certificate of the same remaining term is assumed to pay. Fees, mark-downs and accrued interest are left out.
| Years left | Price if new CDs pay 5.00% (illustrative) | Loss against face | Price if new CDs pay 6.00% (illustrative) | Loss against face |
|---|---|---|---|---|
| 1 | $9,904.76 | $95.24 | $9,811.32 | $188.68 |
| 4 | $9,645.40 | $354.60 | $9,306.98 | $693.02 |
| 9 | $9,289.22 | $710.78 | $8,639.66 | $1,360.34 |
| 19 | $8,791.47 | $1,208.53 | $7,768.38 | $2,231.62 |
The same one-point rise costs under $100 with a year left and over $1,200 with nineteen left, because a buyer has to be compensated for each remaining year of the lower rate; a two-point rise nearly doubles each loss. The loss exists only if you sell: held to maturity, the bank repays the $10,000 face value and the final interest. And the arithmetic runs in reverse: at an illustrative 3.00%, the four-years-left certificate would fetch $10,371.71, unless it is callable and the bank calls it first. Matching maturities to the dates you need the money, as a CD ladder does, avoids needing a buyer at all.
Callable brokered CDs
The SEC is plain about it: "Only the issuing bank may call a CD, not the investor." If rates fall, the FDIC says, the bank may call the CD and return your money plus accrued interest "because it can issue new CDs at the lower interest rates". NASD's notice adds that calls "typically are exercised when a brokered CD is trading at a premium to its call price", which leaves you with reinvestment risk. So the table is lopsided for a callable CD: if rates rise, you keep the old rate and a lower price; if they fall, the bank can take the certificate back at face. Both brokerages' disclosures add that a callable CD bought above face on the secondary market repays only face value if called.
The SEC also warns that "one-year non-callable" means only that the bank cannot redeem the CD in its first year; the words "have nothing to do with the CD's maturity date".
If the owner dies
The FINRA and SEC investor guidance located does not describe a death feature, so this rests on the two brokerages' own documents. Both say that on the owner's death or adjudication of incompetence, "early withdrawal of the entire CD will generally be permitted without penalty". Beyond that they differ. One says every CD it offers lets heirs put it back to the bank at full face value, with interest to the date of death. The other says most brokered CDs, not all, carry such a survivor's option, and that issuers may cap these redemptions at the FDIC insurance limit or per period.
Brokered CDs inside an IRA
A brokerage IRA can hold brokered CDs: the IRS notes you can open an IRA "through your stockbroker", and one large brokerage names an IRA among the accounts that can buy them. The IRA is the wrapper and the CD sits inside it, as with an IRA CD at a bank. Three things change.
Insurance. The FDIC says pass-through coverage depends on "the actual ownership category in which the principal or owner holds the funds", and it adds all of one person's IRA deposits at one bank, traditional and Roth together, into a single $250,000. No FDIC page located names brokered CDs in a brokerage IRA, but both brokerages' disclosures treat IRA deposits as their own category, added together at each bank.
Required distributions. Both disclosures say that having to start required minimum distributions does not by itself make a CD in the IRA eligible for early withdrawal; they point owners to matching maturities or to the secondary market. The distribution can generally come from any of your traditional IRAs, as the RMD page explains.
Tax. Interest inside the IRA is not taxed as it is earned, and the IRS tells payers not to report "interest that is earned but not distributed from an IRA". Withdrawals follow the IRA CD rules.
SIPC if the broker fails; the FDIC if the bank fails
| What fails | Who steps in | What is covered |
|---|---|---|
| The issuing bank | The FDIC, by pass-through coverage | Principal and accrued interest to $250,000 per depositor, bank and ownership category, if the three conditions hold |
| The brokerage | SIPC, if the firm is a member | The CDs and cash held in your account (custody, not value), to $500,000 per separate capacity, of which up to $250,000 may be cash |
| Nothing fails; rates rise | Nobody | Nothing: the fall in the CD's market price is yours |
SIPC's investor FAQ says CDs count as securities for its purposes, under "the $500,000 protection limit applicable to securities, not the $250,000 limit applicable to cash". SIPC protects only "the custody function of the broker dealer", restoring what was in customer accounts when the liquidation began; it "does not protect against the decline in value" of your securities, and it covers only CDs held at a SIPC member, not at a bank. Its limits apply per separate capacity, so an IRA and a Roth IRA at one firm get up to $500,000 each. FDIC insurance, for its part, does not protect against a broker's failure.
How brokered CD interest is taxed
In a taxable account, CD interest is taxable interest; the IRS lists "certificates of deposit" among its examples. The timing depends on how it pays:
- Paid at least yearly, or a CD of a year or less paying at maturity: generally income when you receive it, or could receive it without a substantial penalty.
- Longer than a year, with interest deferred: taxed each year anyway. Publication 550 says "A CD is a debt instrument"; for one maturing in more than a year you include part of the total interest in income each year as original issue discount (OID), "whether or not you receive any payments from the issuer".
- The forms: a broker holding a bank CD as nominee must report any OID on Form 1099-OID; OID on obligations of a year or less goes on Form 1099-INT.
Selling early is where the IRS text runs short. Publication 550's passages on selling debt before maturity are written for bonds and other debt instruments and do not name CDs; no IRS passage located addresses a brokered CD sold early, or treats the price lost on a sale as the deductible penalty a bank charges for early withdrawal.
Questions to ask before buying one
- Which bank issued it? The SEC calls knowing this "very important"; the FDIC's BankFind tool confirms whether that bank is FDIC-insured.
- What else do you hold at that bank in the same ownership category, directly or through any broker?
- Is it a deposit at all? FINRA has warned that a high-yield CD offer can end in "a costly financial product that is not an FDIC-insured CD".
- Are you paying over face value? Both brokerages say the premium is not FDIC-insured.
- Is it callable, and from when?
- What would an early sale cost, and will there be a buyer?
- Is there a death feature, and with what limits?
More on brokered CDs
Brokered CD vs bank CD puts the two side by side, including what each costs to leave when rates rise and when they fall.
How the CD desk works at one large fund company reads one brokerage's own terms: new issues and secondary trades, fees, minimums, where the interest goes, early sales and calls.
How the CD desk works at one large brokerage reads the same terms at a second firm.
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