Fidelity’s certificates of deposit differ from traditional bank CDs in that they’re brokered CDs, which are CDs issued by banks but available only to brokerage customers. Fidelity offers new-issue CDs from various banks as well as CDs sold by other investors on a secondary market. Unlike bank CDs, brokered CD rates fluctuate daily and can be higher or lower than those found directly through online banks and credit unions.
In this guide we will analyze how Fidelity CD rates compare to other banks. Make sure to checkout our updated list of Fidelity CD Rates.
How Fidelity CDs work
Getting brokered CDs is a more complex process than opening bank CDs.
Investment portfolio required. You must have a brokerage account, either a taxable or individual retirement account, to hold your Fidelity CDs.
Minimum per CD: Fidelity’s new-issue CDs start at $1,000 and are typically issued in increments of $1,000. Unlike regular bank CDs, which may hold various amounts of money, Fidelity breaks its CDs up into smaller, typically standardized amounts. For example, buying $20,000 in CDs technically means you’re buying 20 CDs of $1,000 each.
Rates are banks’ decisions: Banks where the CDs originate can choose to have higher or lower rates for their Fidelity CDs than what they offer directly to their own customers.
Types of CDs: Fidelity offers three:
- Regular CDs: You receive interest until the term ends, or you can decide to sell before then.
- Callable CDs: These tend to have a slightly better rate than regular CDs, but have an important caveat. The bank issuing them can “call” or cancel the CD before the term ends. This means you would receive interest only for the time you had the CD.
- Step-up CDs: These CDs have a predetermined schedule for rate increases and are usually callable, so you might not see the rate increase before the CD gets called.
The type of CD depends on the issuing bank, which you can see in Fidelity’s marketplace.
More Details About Fidelity CDs
- Minimum requirement per CD: $1,000
- Interest payment frequency: Depends on the CD. CDs can pay interest “at maturity,” meaning when the term ends, or pay you monthly, semiannually or annually.
- The interest goes into the Fidelity account that holds the CD, not back into the CD. This Fidelity account can be an IRA, taxable brokerage account or cash management account.
- Monthly fee: There are no monthly fees
- Range of new CD terms: 1 month to 20 years
- Compounding period: None.
- Brokered CDs earn simple interest, not compound interest like bank CDs do. This means you earn the same amount of interest every year of a CD’s term instead of earning increasingly more interest as a CD’s balance gets higher.
- Early withdrawal penalty: None, but there could be a related cost. If you need to access money from a CD before a term expires, you must sell it on a secondary market. Selling can result in losing money on a CD.
- Renewal period: None, unless enrolled in Fidelity’s auto roll service.
Fidelity CD Pros and Cons
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Pros
- Fidelity can federally insure beyond a bank’s limits. Federal deposit insurance at a bank can cover only up to $250,000 per account type per customer. Since Fidelity lets you buy CDs from many banks, you can expand your protection against the possibility of a bank failing.
- Range of terms is wider than you can find at most banks. Fidelity offers flexibility for short- and long-term CDs and CD ladders, with rare 10- and 20-year terms.
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Cons
- Top rates available today may fluctuate. Since the CDs are not Fidelity’s own, it doesn’t control what rates show up in its marketplace. There’s no guarantee you’ll find the same top rates in the morning and evening on the same day. But once you buy a CD, you lock in that rate.
- Some investing knowledge required. A new investor might come across unfamiliar terms on Fidelity’s platform. For example, “coupon” refers to interest rate and “call protected” means a CD is not callable.
Author’s Verdict
If you have excess funds just sitting in your checking account (that more than likely won’t be touched), it’s a good idea to invest it in an interest-bearing account like a CD. By opening a CD account, your money will be earning money for you while you sleep by earning you a return on your funds.
Please let us know if you find out any information regarding whether this account triggers a hard or soft pull. Do you know of a better CD rate elsewhere? If so, let us know! Let us know about your thoughts and experience with Discover Bank in the comment section below. Be sure to check back on BankDealGuy for more bank promotions and the best CD Rate Offers!
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