Advertiser Disclosure

Banking

The Ultimate Guide to Brokered CDs

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

You may have noticed that brokered certificates of deposit (brokered CDs) are offered as an investing option by your wealth advisor or online investing platform. You may also be enticed by the better interest rates offered by brokered CDs, while also wondering about the extra fees charged for them. What gives?

Like traditional CDs, brokered CDs are interest-bearing accounts that have a set term and yield. But instead of depositing money in a bank’s CD, you purchase brokered CDs through a middleman — your stock broker or financial advisor. These middlemen buy CDs in bulk from banks, negotiate higher rates, and charge extra fees.

Taken together, these factors make investing in the brokered option a different experience than depositing money in traditional CDs. Let’s take a look at the differences and help you understand when buying a brokered CD may give you an investing advantage.

What is a brokered CD?

Think of these CDs as investment products that are more like stocks, bonds or mutual funds than a bank deposit account. They are called “brokered” CDs because investment funds and brokerages purchase CDs from banks, credit unions and thrift institutions, and then resell them to you.

When middlemen buy CDs from banks, they shop around for the best rates and purchase from different sources. In addition, they buy in CDs in bulk. Taken together, these factors let them offer their customers more competitive rates — and some other key advantages — but it’s also why they charge fees for that extra convenience and yield.

Brokered accounts generally credit you with simple interest rates rather than compounding interest. Holders of the brokered option normally get paid simple interest monthly, quarterly, semi-annually or annually. Simple interest is calculated only on the principle you deposit in your brokered CD account. If you invest $10,000 at an interest of 3%, you will earn $300 in interest at the end of the year, and there will be no compounding of that interest at given intervals.

Bank CDs must be held to maturity, and if you withdraw your money early, you’re charged a penalty. Holders of brokered CDs can resell them on the secondary market before maturity. Like with other fixed-income investments, the market value of these CDs fluctuates as interest rates rise and fall. If interest rates are higher, holders will see a net loss if they sell early, but then again they can end up with a net profit if rates fall.

Like traditional CDs, brokered CDs are covered by FDIC insurance up to $250,000 per account, per institution. This gives them a huge advantage over speculative investments: You’re guaranteed to get your money back. If you’d like to invest more than $250,000 and maintain FDIC insurance, you can distribute your money among different brokered CD issues sold by the same middleman, as long as you keep each deposit under the $250,000 FDIC limit per bank.

Who buys brokered CDs?

The conventional wisdom is that individual savers tend to buy traditional CDs, while bigger institutional investors tend to buy the brokered option, with the former investing smaller amounts and the latter moving large amounts of money in and out of these brokered accounts as broader markets rise and fall.

But Ken Tumin, founder and editor of DepositAccounts.com, another LendingTree-owned site, said that individual investors have more and more options for buying brokered CDs.

“For example, at Fidelity, brokered CDs can be purchased with a minimum deposit of $1,000,” Tumin said. “There are actually lots of advantages for investors to use brokered CDs instead of direct CDs, especially inside IRAs.”

Many experienced investors say that buying these CDs via online investment platforms simplifies the process of managing their CD investments, especially redeploying balances once the CDs mature. Handled properly, it can be a more convenient strategy than opening traditional CD account that are separate from your online brokerage account.

Benefits of brokered CDs

  • Simpler access to a wider variety of CDs. If you choose to buy new-issue CDs directly from banks, it can be complicated to compare and evaluate offers from different institutions. If you purchase these CDs through a middleman, you can quickly and easily select CDs of different terms from a variety of issuers in different states.
  • You don’t have to pay an early-withdraw fee if you sell your brokered CD early. You would have to lose some interest earnings with a traditional CD if you withdraw your funds prematurely. But the brokered option can be sold before maturity on the secondary market.
  • Brokered CDs may bear higher rates. Rates on these brokered accounts are often more sensitive to ups and downs of Treasury yields than traditional CDs are. When Treasury yields are rising, the rates offered on the brokered accounts are higher than those for traditional CDs of like maturity. But there’s no guarantee.

Risks with brokered CDs

  • You may lose money from selling your brokered CD prior to maturity. In an ideal situation, you want to keep your CD, brokered or traditional, until maturity. But if you have to sell your brokered CD before maturity in a rising interest environment, the demand for these CDs falls on the secondary market, and so you may have to sell your CD for less than you paid.
  • Some brokered CDs are callable. This means the bank has the option to “call”, or redeem it prior to maturity at a given price, as stated in the CD contract’s terms. If rates slide after you buy your CD, then the bank will exercise the call option. And then you may have to reinvest the money at a lower rate if you want to invest in a fixed-income instrument.
  • Suspiciously high rates may be a scam. Unscrupulous brokers of advertising above-market CD rates to attract people. Never fall for high rates without doing research on the broker, you can be exposed to the risk of losing money to fraud.

Brokered CDs vs. traditional CDs

All CDs are issued by banks. You purchase traditional CDs from banks directly. But the brokered accounts are purchased by brokerages in bulk from one bank and then resell them to retail investors.

 

Brokered CDs

Traditional CDs

Issuer

Banks

Banks

Interest

Compounding interest

Simple interest

Complexity

High

Low

Fees

Early withdrawal fee

Intermediary fee

For traditional CDs, interest is calculated on a compounded basis, while simple interest is applied to brokered CDs. If you deposit the same amount of money for the same period of time, in general, you will earn more in interest if it’s calculated on a compounded basis than if it’s simple interest.

The brokered options are more complicated and riskier than traditional CDs. The brokered accounts are more sensitive to market interest rates. You may lose money if you sell your CD before it matures because the value can slump due to rising interest rates, and longer maturities have higher interest rate risk.

You can incur early withdrawal penalties if you choose to close a traditional CD prior to maturity. In general, the longer the CD term, the bigger the early withdrawal penalty you may have to pay.

If you buy a CD through a middleman, such as a brokerage or your financial advisor, you may have to pay a fee, and there also is a transaction fee when you sell your CD. Sometimes the costs are worth it if they provide you with CDs that bear higher interest than that of traditional CDs. But that’s not always the case.

It makes sense to buy a brokered account when the interest is greater than the yield on Treasury bonds with a similar duration. In addition, unlike traditional bank CDs that pay your interest at maturity, some brokered accounts offer the flexibility of periodic payments. You can be paid monthly, quarterly, annually, or at maturity.

Making the right CD choice

Compare rates for traditional CDs and brokered CDs. In general, you go for the most competitive rates possible. But you should also factor in the minimum deposit, the payment period and potential costs associated with each CD.

If you are more of a risk taker who prefers the flexibility of closing a CD at any time, then the brokered option is for you. Likewise, if you have lots of money to invest in a deposit account and don’t want to be subject to the $250,000 FDIC-insured limit, the brokered option is the way to go.

But if you plan to invest your funds for a long term and don’t want to handle the complexity and risk associated with a brokered CD, then you will be better off with a traditional CD.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at [email protected]

TAGS:

Advertiser Disclosure

Banking

Chime vs Simple: Which Fintech Disruptor is Better?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Chime and Simple are online-only, mobile banking apps that aim to disrupt the way traditional bank accounts work. Both apps offer tightly integrated budgeting features that make managing your money easier and more automated, and give you access to thousands of fee-free ATMs through partner networks.

Chime offers a checking account and an optional savings account, although the prior yields no interest and the latter’s APY is negligible.  Chime’s big claim to being a fintech disruptor is its ability to credit your account with your paycheck two days ahead of schedule. Chime partners with The Bancorp Bank to offer FDIC-insured bank accounts and issue a Visa® debit card.

Simple’s cash management account is a hybrid checking/savings vehicle that yields a competitive APY. Simple’s accounts are managed in partnership with BBVA Compass, which issues the Simple Visa® debit card and provides FDIC insurance on your money.

Chime vs Simple: How their rates compare

 ChimeSimpleNational averageOnline bank average
Savings0.01% APY2.02% APY for balances above $2,0000.27% APY1.69% APY
Checkingn/a2.02% APY0.19% APY0.52% APY

Chime focuses on saving the money you already have, rather than growing your balances at a competitive rate. Chime Spending Account, its checking account product, earns zero interest, while its optional Savings Account earns at only a minimal rate.

Simple’s hybrid account offers a competitive yield for savings, but you must meet a minimum balance requirement to earn the full rate. To earn 2.02% APY, you must shift at least $2,000 from the checking side of the account to the “protected goals” savings side. If your balance drops below $2,000, you’ll earn 2.02% APY instead. The checking account earns a 2.02% APY, regardless of balance.

Chime vs Simple: Which has better account options?

With direct deposits, Chime eliminates the typical one- to two-day “electronic limbo” of waiting for paychecks to move via Automated Clearing House (ACH) from your employer’s bank to your account. Instead, Chime makes your paycheck instantly accessible in its Spending Account when your employer deposits it. This can be a great option for those who live paycheck to paycheck and need more immediate access to that money.

Chime’s Spending Account helps automate the savings process. Its Save When You Spend feature automatically rounds up your debit card transactions to the nearest dollar and transfers the extra balance to your Chime Savings Account. You can also choose to automatically set aside 10% of each paycheck towards savings.

Simple offers budgeting tools as well. You can allocate money kept in checking side of the account among expenses, savings and discretionary spending sub-accounts. The protected goals savings component includes multiple sub-accounts, called “savings goals,” letting you earmark funds for an emergency fund, college tuition or your next big vacation. For each goal, you set a total amount to save, a date to save it by and how often you want to transfer money from your Simple checking account. The app then automatically tops up the savings goals over time.

Simple also offers shared accounts for two users — Chime does not currently offer joint accounts. Shared accounts lets you and your partner manage money and save together using the tools outlined above. According to Simple, you can open a shared account with anyone, from your roommate to the person you just met at a hostel.

Chime vs Simple: How they compare on fees

 ChimeSimple
Account monthly fee$0$0
ATM fees$2.50 (out-of-network ATM fee/Over The Counter fee)$0
Overdraft fees$0$0

Simple is serious about charging zero fees. There are no monthly fees, no overdraft fees, and no foreign ATM fees. However, it’s still wise to stick to Allpoint ATMs when you can — Simple may not charge a fee, but the ATM owner still does, and Simple doesn’t reimburse ATM surcharges. You also pay Visa’s International Service Assessment (ISA) of 1% of the transaction amount if you use your Simple card internationally. As for overdrafts, your transaction will simply be declined if you try to make a purchase without sufficient funds.

Chime is only slightly less fee-free than Simple. It doesn’t charge fees for overdrafts, transactions, card replacements and more. However, if you use an ATM outside of the MoneyPass or Visa Plus Alliance networks or make an over-the-counter withdrawal, you’ll be charged a $2.50 fee. As with Simple, any overdraft transactions will be declined.

Without charging fees, these companies have to make money somehow, right? Both Chime and Simple make theirs by taking a percentage of the interchange fees from your debit card transactions at merchants (they divide the fees with the card issuer). Simple also makes money through the interest margin on deposits.

Who should bank with Chime?

Chime is useful if you find yourself needing access to your paychecks sooner than usual. Its early direct deposit model takes your money out of a bank holding pattern and puts it in your hands as soon as it’s deposited by your employer.

Chime is also a great option for customers who might have bad credit or a compromised banking history. Unlike many traditional banks, Chime doesn’t use ChexSystems, a consumer reporting agency that keeps track of any problems in your banking history. Instead, Chime opens the doors for customers with bad credit to help them get back on their feet through their essentially no-fee account model and automatic savings options.

Who should bank with Simple?

You should bank with Simple if you’re looking for a completely fee-free banking experience and the savings benefits of a high savings account rate. There are no fees, even for out-of-network ATM usage. And if you’re able to keep at least $2,000 stashed away toward savings goals, you’ll snag a competitive APY and grow your savings faster.

Alternatives

One alternative to Chime and Simple is Aspiration. Aspiration sets itself apart by offering “socially-conscious and sustainable” banking and investment products, and donates 10% of its customer-paid profits to American charities. It also operates on a Pay What Is Fair system, where its customers get to choose what to pay in monthly fees, even if it’s $0. You can use any ATM in the world without incurring a fee from Aspiration, which will also reimburse you for any ATM surcharges you rack up.

Its banking product is a cash management account called Aspiration Spend & Save. It earns 2.00% APY on the entire Save account. Even better, the Spend account earns 1% cash back on purchases at socially responsible businesses and 0.50% cash back at not-so-conscious businesses.

Another alternative is Empower, which operates strictly on its mobile app. Empower charges zero fees and provides an AI assistant to help you combine accounts, track spending and find savings. It earns some solid rewards, too, although its website language is slightly misleading in places. By default, using the Empower debit card earns 1% cash back on the first $1,000 you spend each month, and additionally, you’ll earn 2.15% APY on your savings account balance. However, you can snag a 30-day boost, increasing your cash back to 2% and earning you an additional 2.15% APY for every person you successfully refer to Empower.

Empower forgoes all fees, including ATM usage, service fees, overdrafts and more. Empower will also reimburse you for one out-of-network ATM fee per month. Otherwise, you can physically access your cash through MoneyPass ATMs.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Lauren Perez
Lauren Perez |

Lauren Perez is a writer at MagnifyMoney. You can email Lauren here

TAGS:

Advertiser Disclosure

Banking

Blast App Review: Grow Your Savings By Playing Games

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

If you’ve been reading about the gig economy and side hustles, you’ve probably heard more than a few times about monetizing your hobbies. Whether it’s selling your crochet masterpieces on Etsy or hopping around the city with TaskRabbit, side hustles work best when you turn your personal interests into money-making ventures.

For gamers in search of a side hustle, the Blast app is here to help. Blast pays you to play Android games, such as Words with Friends and Diner Dash, on its app. Don’t expect to rake in the big bucks, however, as you’ll likely only earn a few cents each time you play. For a few high scorers, your shot at the big money is getting your name on the competitive leaderboard.

Blast also includes a high-yield savings account to store and grow your earnings at 2% APY. While this is certainly an added perk to a fun gaming app, it’s not made for serious savings. The account imposes low limits on your deposit and withdrawal capabilities, keeping the account confined to the app’s earnings.

Blast features

Via blast.com
  • An extensive list of games and Missions (more below) from which to choose
  • The chance to earn bonus cash by topping leaderboards
  • A high-yield savings account
  • Further automatic savings opportunity through Game-Based Savings

Blast offers a variety of games to play, from “casual to hardcore,” as it puts it. Everybody should be able to find a game that suits their tastes. You can see your options right from the app’s homepage, clocking each game’s earning potential at a glance.

Each game has a set of Missions, or objectives, to complete, such as completing the game’s tutorial or passing a difficult level. You earn your cash rewards, or Mission Rewards, by completing these Missions. Cash rewards aren’t huge, paying out between 5 cents and a few dollars, depending on the Mission. For example, completing the tutorial of an “Easy” game can rake in 25 cents, while beating level 10 in a “Hard” game could reward you with $5.

Missions change periodically, so be sure to check back in to find new ones you haven’t tackled yet.

The chance to earn more than a few cents comes with ranking on the leaderboard. You can do this by collecting eXperience Points, or XP, for every dollar you earn or by completing certain Missions. Each week, a new leaderboard winner is chosen. Each winner is rewarded with an extra $50. Those ranked lower can still win a bit of extra prize money, too, depending on how high up the board they land.

Blast savings account

To take your savings a little further, all the money you earn through Blast Missions is deposited into a Blast account that earns at 2% APY.

While this is a relatively competitive rate, paired with the minimal earnings you get from Missions, it doesn’t yield much savings. Say you start with 50 cents for completing a Mission or two and each month you earn $1 more. In five months, your total savings would equal a whopping $5.53.

You can take a bit more advantage of the APY by setting up recurring deposits, either weekly or monthly, from a linked external checking account. However, even here, Blast limits your savings abilities. The minimum daily deposit amount is $5, while the maximum is only $50. This doesn’t offer much ease or convenience if you’re trying to move around bigger sums of money.

Further, all deposits cannot exceed a combined daily maximum of $100. This includes any recurring deposits and deposits from Blast’s Game-Based Savings feature. This optional feature allows you to save 1 cent for every minute you spend playing any Blast game on your Android. This isn’t a cash reward paid by Blast, though. The money comes out of your personal checking account. You have to earn at least $5 for a Game-Based Savings transaction to go through — which equals more than eight hours of gameplay. However, transfers cannot exceed $10 in a seven-day period. All Blast transfers take one to two business days to fully settle.

You can also transfer money from your Blast savings account to a linked checking account or PayPal account. The minimum daily withdrawal amount is $5. Transfers out of a Blast account will take four to six business days.

Blast fees and fine print

It’s pretty free to open and use Blast. There are no monthly or annual fees.

The only fee you’ll have to keep an eye out for is the 30 cent PayPal transaction fee when you make transfers from your Blast account into a PayPal account.

There are a few steps you have to successfully complete when using the Blast app to earn your Mission rewards. Once you’ve chosen a Mission, you’ll have to hit the “Connect” button. You have to connect through the Blast app before a Mission expires to be eligible to receive Mission rewards. You must also start and finish a Mission on the same device for it to count.

Additionally, to earn Mission rewards, you must not have previously installed or played the game on your device outside of the Blast app.

You can use Blast with almost every game in the Google Play Store, offering the chance to earn just by having an Android. Compatibility with the Apple App Store, Steam and other PC and console titles is not yet available, but it is planned in the future.

As for security, Blast doesn’t play around, implementing bank-level security — provided by Plaid — and maximum FDIC — through a Wells Fargo For the Benefit Of (FBO) account — insurance for a fun and secure experience.

Opening a Blast app account

Blast is only available for Android users. You can sign up online to be placed on the iOS waitlist.

You can find the Blast app in the Google Play Store. To create an account, you’ll need to provide your email. You don’t need to link an external checking account right away, but you’ll need to eventually if you want to transfer your Blast rewards out.

Now, you’re ready to play — and earn.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Lauren Perez
Lauren Perez |

Lauren Perez is a writer at MagnifyMoney. You can email Lauren here

TAGS: