[Update June 2022: The brokered CDs available at Charles Schwab are on the rise again this month in anticipation of perhaps the FEDs largest rate increase since 1994. Charles Schwab’s CD rates have increased by between 0.30% and 0.76% on all terms in June alone. See all CD rates below.]
Charles Schwab is a multinational financial services company founded and headquartered in San Francisco, California.
They’ve built up an impressive sum of assets under management since their inception in 1971 with just over $3.3 trillion and counting.
Charles Schwab has an array of products and services that it offers to both retail and institutional clients encompassing commercial banking, stock brokerage, and wealth management advisory services.
For the purposes of this review, we will only focus on the brokered CD (certificate of deposit) rates offered through Charles Schwab. To see all of Charles Schwab’s CD options you will need to login to the Schwab CD OneSource platform here or continue reading below.
Charles Schwab Brokered CD Rates + Account Details
It is important to keep in mind that Charles Schwab does not issue CDs themselves, but rather brokers (or re-sells) bank CDs issued by FDIC-insured banks and financial institutions.
Charles Schwab CDs require a minimum deposit of $1,000 and you may increase your investment size by increments of $1,000.
To put these offers in perspective, the current national average on a 12 month CD and a 60 month CD sit at just 0.21% and 0.39% APY, respectively, according to recent FDIC data.
For all new issue CDs a selling concession is already included in the overall price for both online and broker assisted trades.
For all CDs purchased on the secondary market through Schwab CD OneSource, a $1 transaction fee per $1,000 is applied. This comes with a $10 minimum and a $250 maximum.
If you need a broker’s assistance for the trade you will also be charged an additional $25 as a trade service charge.
All of the brokered CDs offered through Schwab OneSource are federally insured by the FDIC through the partner bank. Thus the same coverage extends to you and can even exceed the $250,000 maximum if you choose to open more than one CD with more than one bank.
For example, if you open two CDs from two different banks through Schwab OneSource, you will get FDIC coverage of $250,000 from one bank and then $250,000 from the second bank. Assuming you have no other deposits at those banks, you’re covered for $500,000.
Compounding Interest + Grace Period
Interest on brokered CDs is not compounded as it would be with a traditional bank as it requires immediate distribution. If you want compounding interest on a brokered CD you will need to reinvest your earnings into a different account.
Grace periods with traditional banks tend to be around 10 days long. During this time a deposit holder may add to or withdraw funds without incurring a penalty. With brokered CDs you will not incur any fee for early withdrawal. If you need funds prior to maturity, a broker will help you sell it on the secondary market. The exact grace period for your deposit can be found by contacting the issuing institution.
Drawbacks and Risks
The main risk in purchasing a brokered CD through Charles Schwab (or any brokerage firm for that matter) is if you need your funds prior to maturity. As mentioned above, in this case you will need to sell your CD on the secondary market. Depending on the interest rate environment at that time it is possible to sell your CD for either less or more than you purchased it for.
Consider the following: You purchase a 2 year CD and need to cash out unexpectedly after the first year. During this time CD rates have also risen substantially. At this point you will likely need to sell your CD at a lower price than you purchased it for because much more attractive rates are being offered on new issue CDs.
Charles Schwab CD rates appear to be getting more competitive each month as the interest rate environment as a whole ticks upwards. Vanguard, Edward Jones and Fidelity have also seen their CD rates rise substantially this year.
The main advantage brokered CDs have over traditional bank deposits is the ability to leverage the FDIC insurance of multiple banks. But in the current interest rate environment, this perk seems less noteworthy.