Fidelity is a multi-national financial services corporation based out of Boston, Massachusetts. They are one of the top 10 AMC (asset management companies) in the world with $2.46 trillion in assets under management and a combined customer asset value of $6.7 trillion.
Fidelity offers a wide range of services, products and tools to suit investors of varying experience levels and risk tolerances.
In this review we will focus on the brokered CDs offered through Fidelity. These can be found under their fixed income and bonds category.
It is important to note that Fidelity is not a bank, but a brokerage firm. Therefore Fidelity does not issue any certificates of deposit themselves, but rather “brokers” or resells them to their clients. The deposits are still obligations of the issuing bank, and thus come with FDIC-insurance up to $250,000 per depositor. That said, because Fidelity is a brokerage service, you can hold multiple CDs in your brokerage account with them, effectively expanding your FDIC coverage past the $250,000 limit. This is also true for their cash management account which allows for FDIC coverage up to $1.25 million.
You can open new issue CDs and/or secondary market CDs through Fidelity. New issue CDs are typically sold at par and clients do not pay a trading fee to purchase them. Purchases (and sales) of secondary CDs incur a trading fee of $1 per CD (1 CD = $1,000 par value). Download Fidelity’s CD disclosure document for a full understanding of their terms and conditions.
Fidelity CD Rates + Account Details
Fidelity offers seven standard term CDs ranging from 3 months to 5 years that come with a minimum deposit requirement of $1,000.
To give Fidelity’s certificate of deposit rates some context, the current national average for a 12 month CD and 5 year CD sit at just 0.22% and 0.47% APY, respectively. And the best rates on 12 month and 5 year CDs from online banks and nationally available credit unions still top 1.00% APY (albeit just barely).
How is Interest Calculated?
Interest on new issue Fidelity CDs do not compound. This is true with most brokered CDs as they require an immediate distribution of interest.
Fidelity CDs that are purchased on the secondary market may be based on other interest rate calculations. You will need to contact the Firm with questions concerning the interest rate calculation on a secondary market CD.
Fidelity Auto Roll Program
Fidelity also has an “Auto Roll Program” that comes with some helpful features. The most notable being the ability to make early withdrawals on your CD without incurring steep fees. This is in contrast to bank or credit union CDs which generally take a portion of your interest as a fine.
The second stand-out feature of the Auto Roll Program is that it allows you to sell part of your CD (or add to it) prior to its maturity date.
You can also keep track of your earnings, set up alerts and auto-renew your CDs based on your chosen asset allocation.
If you would not like to be a part of the Auto Roll Program, you may cancel at any time.
Fidelity Brokered CDs: Pros and Cons
Brokered CDs offered through Fidelity come with some benefits and downsides. For starters, the current rates offered (shown above) are less competitive than those found at top online banks and credit unions.
Second, while new CDs don’t come with any fees, CDs purchased on the secondary market will be subject to a trading fee similar to buying or selling a stock.
Fidelity’s brokered CDs also come with some distinct advantages.
The biggest being liquidity. If you need your funds prior to maturity you can simply sell it during any trading day on the open market. Keep in mind though that the market prices will fluctuate based on rates. This means it’s also possible to sell your deposit for less (or more) than you purchased it for.
For example, if you open a 5 year deposit and need the funds after year 2, during which time interest rates have risen considerably, you may have a tough time selling your deposit for your full purchase price because consumers can get better rates through new issue CDs.
Conversely, if you purchase a 5 year deposit and rates drop significantly (which they have) then you may find investors willing to offer a premium on your CD in the secondary market.