Bank CDs vs. Brokered CDs: What’s the Difference and Which One Is Right for You?

Saving for the long term can feel overwhelming. There are so many options high-yield savings accounts, bonds, money market accounts, and certificates of deposit (CDs). If you’re thinking about opening a CD, one important decision is whether to choose a bank CD or a brokered CD.

They may sound similar, but they work in different ways. Let’s break it down in plain English so you can decide which one fits your goals.

What Is a Bank CD?

A bank CD is a savings product you open directly with a bank or credit union. You agree to deposit your money for a fixed period maybe 6 months, 1 year, 3 years, or longer. In return, the bank pays you a fixed interest rate.

Here’s how it works in real life:

Imagine you deposit $10,000 into a 2-year CD earning 4.50% APY. You agree not to touch the money for two years. In exchange, the bank guarantees your interest rate for that entire period.

Banks like CDs because they know your money will stay put for a set time. That helps them plan their lending. Because of this stability, longer-term CDs usually offer higher rates than shorter ones.

Pros of Bank CDs

• Simple and easy to open — You can open one at your local branch or online.

• Clear rules — You know exactly how much interest you’ll earn.

• FDIC insured (up to $250,000 per depositor, per bank) — Your principal is protected within limits.

• Early withdrawal penalty is predictable — Usually a set amount of interest (for example, 90 days).

Cons of Bank CDs

• Limited flexibility — If you withdraw early, you pay a penalty.

• Lower rates in some cases — Depending on the bank, rates may not always be the highest available.

• Less useful for very large deposits — FDIC coverage is capped per bank.

For most everyday savers especially those with less than $250,000 to invest bank CDs are straightforward and reliable.

What Is a Brokered CD?

A brokered CD is a CD that you buy through a brokerage firm instead of directly from a bank. The brokerage buys CDs from multiple banks and then offers them to investors through their platform.

You’ll see brokered CDs in your brokerage account, alongside stocks, ETFs, and bonds.

Here’s an example:

Let’s say you have a brokerage account at Fidelity, Schwab, or another investment firm. Instead of going to individual banks, you can browse CDs from dozens of banks in one place. You choose the rate and maturity you want, and the brokerage handles the transaction.

The Biggest Difference: How You Get Out Early

This is where things change.

With a bank CD, if you need your money early, you withdraw it and pay a penalty (usually a few months’ worth of interest). Your principal is generally returned in full.

With a brokered CD, you can’t simply “close” it. Instead, you must sell it on the secondary market—similar to selling a bond.

And here’s the risk:

• If interest rates have gone up since you bought your CD, your CD becomes less attractive.

• You may have to sell it at a discount.

• That means you could lose some of your original investment.

So while brokered CDs may seem flexible because they can be sold, the sale price is not guaranteed.

Pros of Brokered CDs

• Access to many banks at once — Easy to compare rates.

• Convenient for large deposits — You can spread money across multiple banks to stay under FDIC limits.

• Potentially competitive rates — Especially for large balances.

If you’re investing $500,000, for example, you could divide it into five $100,000 CDs at different banks all through one brokerage account keeping each portion under FDIC insurance limits.

Cons of Brokered CDs

• Market risk if sold early — You could lose money.

• Possible fees — Some brokerages charge transaction fees.

• More complex features — Some brokered CDs are “callable,” meaning the issuing bank can redeem them early if rates fall.

Callable CDs can be tricky. If rates drop, the bank may call the CD back and stop paying that higher interest rate—just when you were enjoying it.

Comparing Bank CDs and Brokered CDs

Common Questions

Do CDs Have Fees?

Traditional bank CDs usually don’t have upfront fees. The “cost” is the early withdrawal penalty if you break the agreement.

Brokered CDs may include transaction fees depending on your brokerage. Always check before buying.

Who Offers the Best CD Rates?

Online banks often offer the highest rates for smaller deposits.

If you’re investing $100,000 or more, you may be able to negotiate a better rate at a local bank especially smaller community banks.

It pays to shop around. CD rates can vary significantly between institutions.

What Happens If Rates Go Up?

This is important.

• With a bank CD, you’re locked in. If rates rise, you’re stuck with your original rate unless you pay the penalty.

• With a brokered CD, if you try to sell while rates are rising, buyers will likely pay less than face value meaning you could lose money.

In a rising-rate environment, brokered CDs carry more risk if you need liquidity.

Which One Is Better for You?

It depends on your situation.

Choose a bank CD if:

• You want simplicity.

• You’re new to CDs.

• You plan to hold the CD to maturity.

• You want predictable penalties if you withdraw early.

Choose a brokered CD if:

• You invest through a brokerage account.

• You’re managing large sums.

• You’re comfortable with market pricing.

• You understand how bond markets work.

Final Thoughts

Both bank CDs and brokered CDs can be useful tools for conservative investors who want steady returns without stock market risk.

For most beginners, bank CDs are easier to understand and manage. Brokered CDs can offer flexibility and broader access but they come with additional complexity and potential market risk.

Before choosing, ask yourself one key question:

Will I need this money before the CD matures?

If the answer is yes, think carefully especially with brokered CDs.

When it comes to long-term savings, understanding the fine print can make a big difference in your results.