Yes, brokered CDs are FDIC insured. Coverage runs up to $250,000 per depositor, per issuing bank, per ownership category, the same standard limit that applies to a CD you would open at a bank branch.1Federal Deposit Insurance Corporation. Understanding Deposit Insurance The protection reaches you through a mechanism called pass-through insurance, which looks through the brokerage sitting between you and the bank and treats you as the depositor. The structure works, but it introduces conditions and tracking issues that a direct bank CD does not.
How Pass-Through Insurance Reaches You
When your brokerage buys a brokered CD for you, it purchases the deposit from an FDIC-insured bank and holds the CD in a custodial account, sometimes called “street name.” The brokerage appears as the legal owner on the bank’s records. You remain the beneficial owner.
Pass-through insurance bridges that gap. Instead of treating the brokerage’s lump position as one deposit capped at $250,000, the FDIC looks through the custodial arrangement and insures each underlying investor’s share separately, as though you had opened the CD at the bank yourself.2Federal Deposit Insurance Corporation. Deposit Broker’s Processing Guide Both your principal and any interest accrued through the date the bank closes are covered.3Federal Deposit Insurance Corporation. Deposit Insurance FAQs
The Record-Keeping Condition That Coverage Depends On
Pass-through insurance is not automatic. It depends on records at two levels. The bank’s deposit records must show the account is held in a fiduciary or custodial capacity rather than as the brokerage’s own money. And the details of who owns how much must be available either from the bank’s records or from records the broker keeps in good faith and in the regular course of business.4eCFR. 12 CFR 330.5 – Recognition of Deposit Ownership and Fiduciary Relationships
If those conditions are not met, the FDIC will treat the entire deposit as belonging to the brokerage firm and insure the whole position for a single $250,000, regardless of how many investors actually hold pieces of the CD. Everything above that one cap would be uninsured.5Federal Deposit Insurance Corporation. Financial Institution Employee’s Guide to Deposit Insurance – Pass-Through Deposit Insurance Coverage Established brokerages maintain these records as a matter of routine, but the point is worth knowing: your coverage ultimately rests on your broker’s bookkeeping.
Watching for Aggregation at the Same Bank
All deposits you hold in the same ownership category at the same FDIC-insured bank are added together for coverage, whether you bought them directly or through a broker.1Federal Deposit Insurance Corporation. Understanding Deposit Insurance Brokered CDs make this easy to miss. Say you keep a $100,000 savings account at Bank A, and your brokerage happens to place a $200,000 brokered CD issued by the same Bank A. Your combined $300,000 exceeds the limit by $50,000, and that overage is uninsured. Neither the bank nor the brokerage is likely to flag the overlap.
The workable approach is to spread brokered CDs across different issuing banks. You can hold $250,000 each at Bank A, Bank B, and Bank C through one brokerage account, and every dollar is covered. What matters is the issuing bank’s unique charter, not the brokerage you bought through.
Bank Mergers
If you hold fully insured CDs at two banks and one later acquires the other, both deposits end up under a single charter. The FDIC gives depositors a six-month grace period after a merger to restructure and restore full coverage.6Federal Deposit Insurance Corporation. Merger of IDIs After that window, any amount above the limit at the combined bank is uninsured. Keeping a running list of each CD’s issuing bank is the only reliable way to catch these overlaps.
Death of an Account Owner
When a depositor dies, the FDIC continues to insure their accounts as if they were still alive for six months, giving heirs time to restructure.7Federal Deposit Insurance Corporation. Employee’s Guide to Deposit Insurance – Death of an Account Owner After six months, coverage depends on the new owner’s total deposits at that bank. There is no equivalent grace period when a beneficiary of a trust or payable-on-death account dies, so coverage in that scenario can drop right away.
Ownership Categories That Stack Coverage
The $250,000 limit applies per ownership category, and the FDIC recognizes more than a dozen separate categories at the same bank. The ones brokered CD investors run into most often:
- Single accounts, insured up to $250,000 for one person’s deposits.
- Joint accounts, where each co-owner is insured up to $250,000 for their share, so two people jointly can cover $500,000 at one bank.8Federal Deposit Insurance Corporation. Financial Institution Employee’s Guide to Deposit Insurance – Joint Accounts
- Certain retirement accounts, including IRAs and self-directed 401(k), Keogh, and Section 457 plans, grouped together and insured up to $250,000 per person at each bank, separate from single or joint accounts.9Federal Deposit Insurance Corporation. Are My Deposit Accounts Insured by the FDIC? – Certain Retirement Accounts
- Revocable and irrevocable trust deposits, each their own category with coverage that scales with the number of beneficiaries.
Because categories are independent, one person could hold a $250,000 individual brokered CD and a $250,000 IRA brokered CD at the same issuing bank and have $500,000 fully covered.10Federal Deposit Insurance Corporation. General Principles of Insurance Coverage
Confirming the Issuing Bank Is FDIC Insured
Pass-through coverage only works if the issuing bank is actually FDIC insured. Before buying a brokered CD, you can verify the bank on the FDIC’s BankFind tool at banks.data.fdic.gov, which returns the institution’s FDIC certificate number.11Federal Deposit Insurance Corporation. BankFind Suite – Find Insured Banks The check takes under a minute.
What FDIC Insurance Does Not Cover
FDIC insurance covers your principal and accrued interest if the issuing bank fails. It does not cover losses from selling a brokered CD before maturity, and it does not preserve your expected return if the bank calls the CD.
Selling Before Maturity
Most brokered CDs cannot be redeemed early by contacting the issuing bank the way you would with a traditional bank CD. If you need the money before maturity, the usual path is selling on the secondary market through your brokerage, and that market behaves like a bond market. If rates have risen since you bought, your lower-yielding CD sells at a loss. If rates have fallen, you may sell at a profit. There is no guarantee buyers are available at the price you want, and the bid-ask spread can further reduce your proceeds.12Charles Schwab. Brokered CDs vs. Bank CDs For money you may actually need before the term ends, a shorter-term brokered CD or a traditional bank CD with a stated early withdrawal penalty is more predictable.
Callable CDs
Some brokered CDs let the issuing bank terminate the CD and return your principal after a set initial period. Banks tend to call when rates have dropped, because they can reissue the deposit more cheaply. You get your principal and accrued interest back but lose the above-market rate you were counting on, and you now have to reinvest at lower prevailing rates.13FINRA. Clarification of Member Obligations Regarding Brokered Certificates of Deposit Callable CDs generally offer a higher headline rate to compensate; comparing the yield to worst against a non-callable CD of similar term tells you whether the extra risk is being paid for.
If the Brokerage Fails Instead of the Bank
Which safety net applies depends on which entity fails. If the issuing bank fails, FDIC insurance covers your deposit up to the applicable limit, and the brokerage’s health is beside the point.
If the brokerage firm fails, the Securities Investor Protection Corporation (SIPC) is the relevant backstop. SIPC covers up to $500,000 per customer, with a $250,000 sublimit for cash.14Securities Investor Protection Corporation. What SIPC Protects SIPC works by recovering and returning customer property, not by covering investment losses. Customer assets at a brokerage are legally separate from the firm’s own assets, so a brokerage failure usually results in your CDs being transferred to another firm. The FDIC insurance on the underlying CD does not go away when the brokerage does; the CD remains a deposit obligation of the issuing bank.2Federal Deposit Insurance Corporation. Deposit Broker’s Processing Guide