🎯 In 30 seconds: Every CD trades some flexibility for a fixed rate. A bank CD lets you leave early by paying a penalty set in your agreement. A brokered CD, bought at a brokerage, has no penalty but must be sold to another buyer, and the price depends on where rates went. Callable CDs can be ended by the bank when rates fall.
Bank CD vs brokered CD
| Bank CD | Brokered CD | |
|---|---|---|
| Where you buy | Directly from a bank or credit union | In a brokerage account, from many issuing banks |
| Leaving early | Pay the early-withdrawal penalty | Sell on the secondary market at the going price |
| What you get back early | Principal and interest minus the penalty | Market price, which can be above or below what you paid |
| Insurance | FDIC or NCUA up to the limits | FDIC at the issuing bank, if records are kept properly |
| Call feature | Rare | Common on longer terms |
Flexible CD types
- No-penalty CD: lets you withdraw after a short waiting period without a penalty. The rate is usually lower than a regular CD of the same term.
- Bump-up CD: lets you ask for a higher rate if the bank’s rate for that term rises, usually once. You start with a lower rate in exchange.
- Step-up CD: the rate rises on a set schedule. Compare the blended yield over the whole term, not the final step.
- Callable CD: the bank can end it early, usually when rates have fallen. You get your principal back and must reinvest at the lower rates.
How early-withdrawal penalties work
Federal law sets a minimum penalty but no maximum. If you withdraw within the first six days after deposit, the penalty is at least seven days of simple interest. After that, the bank’s account agreement decides. Penalties are often stated as a number of months of interest, and they vary a lot by bank and term.
Worked example. $10,000 in a 5-year CD at 4.50% with a penalty of 6 months of interest. Six months of simple interest is $10,000 × 4.50% ÷ 2 = $225. Break it after 2 years, having earned roughly $900, and you keep about $675 of interest. Break it in the first few months and the penalty can be larger than the interest earned so far, which means it comes out of principal.
Selling a brokered CD before maturity
No one has to buy your brokered CD back, and the secondary market for a given CD can be thin. If rates have risen since you bought, buyers will pay less for your lower rate.
Worked example. You buy a $10,000 2-year brokered CD paying 4% a year. One year later, new 1-year CDs pay 5%. Your CD will pay $10,400 at maturity. A buyer wanting 5% would pay about $10,400 ÷ 1.05 ≈ $9,905, a loss of about $95 before any dealer markdown. If rates had fallen instead, you could sell above $10,000. Held to maturity, you get the full $10,400 either way.
Callable CDs in practice
A callable CD often pays a bit more because you are giving the bank an option. The bank uses it when rates fall, which is exactly when you would want to keep the old rate. When comparing, look at the earliest call date and ask: “Would I still be happy if this ended on that date?” A brokerage’s CD listing usually shows whether a CD is callable and when.
Picking a type
- Known date, no chance of needing it early: a regular bank CD or a non-callable brokered CD with the best APY.
- Some chance you need it: a no-penalty CD, or a bank CD with a small penalty.
- Building a ladder with many maturities in one place: brokered CDs, non-callable if you want the rate to last. The ladder tool is on Today’s Rates.