Brokered CDs from different brokers?

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Brokered CDs from different brokers?

Postby dm200 » Tue Feb 02, 2010 6:24 pm

Are there any signifcant differences between brokers in purchasing brokered CDs? Are better rates and terms available from some brokers? Is there a different inventory, depending on the broker? Are there any cost differences, when buying new issues?
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Postby Bob's not my name » Tue Feb 02, 2010 9:39 pm

I'm not an expert, but I do have experience buying and selling CDs with four different brokers, one of which is VBS. Yes, there are significant inventory differences. Each broker cuts its own deals with the issuing banks (there may still be identical offerings from different brokers). The secondary market offerings tend to show more variety, because, in effect, a bulk purchase by one broker eventually shows up on the secondary market at multiple brokers. Some (including VBS) carry callable 15- and 20-year CDs, while at least one of the full service brokers carries only non-callables of 10-years or less. I've never discerned any rate differences in new issues. All brokers with which I have experience sell new issues without commission -- they make their money in the deal with the issuer.

I believe an important difference exists if you ever need to sell your CDs. I found the full service brokers to be unenthusiastic about selling, and I have anecdotal evidence that they got inferior bids compared to VBS. The "full service" process goes like this: you call them up to ask them to put a CD out for bids, they call you back later when you're in a meeting, you play phone tag for a while, and then you finally get to hear the bids and decide whether to accept. On a number of occasions I declined the bids, but on one interesting occasion I declined the bids and argued that the CD ought to be getting better bids. The next day they called me with a bid that was about 2 points higher. Since this was a $100,000 CD, that meant a few thousand dollars more for being a thorn in their side. Note: declining bids didn't get me a better price, declining and complaining did.

Another anecdote is that I tried several times to sell a CD through a full service broker and got no bids above par. I transferred the CD to VBS and they put it out for bids, got six bids, and the top bid was about 2 points above par. Again, that was a few thousand dollars for my trouble.

A final point of interest (thank you, I'll be here all week) is that when I sold that CD through VBS I immediately saw it offered at the VBS bond desk for 0.7 points above what I had sold it for. To recap: no bids above par at full service broker, sold for about 2 points above par at VBS, and then on offer at about 2.7 points above par. Ah, the life of the bond trader.

In case you're wondering why the heck I'm buying and selling long-term CDs, especially given these bid-ask spreads: as trustee and executor for some elderly persons, I purchased long-term CDs in their trusts, planning to liquidate them by death put upon their deaths. When the owner has only a short time to live, you might as well buy 20-year CDs to get the highest rate. As it turned out, interest rates dropped after everyone said they had nowhere to go but up, so instead of exercising the death puts I sold them at premiums.

Finally, VBS has a nice feature that allows you to check with a single click whether any bids are out for the CDs you hold.
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Postby dm200 » Wed Feb 03, 2010 12:49 pm

Bob's not my name wrote:I'm not an expert, but I do have experience buying and selling CDs with four different brokers, one of which is VBS. Yes, there are significant inventory differences. Each broker cuts its own deals with the issuing banks (there may still be identical offerings from different brokers). The secondary market offerings tend to show more variety, because, in effect, a bulk purchase by one broker eventually shows up on the secondary market at multiple brokers. Some (including VBS) carry callable 15- and 20-year CDs, while at least one of the full service brokers carries only non-callables of 10-years or less. I've never discerned any rate differences in new issues. All brokers with which I have experience sell new issues without commission -- they make their money in the deal with the issuer.

I believe an important difference exists if you ever need to sell your CDs. I found the full service brokers to be unenthusiastic about selling, and I have anecdotal evidence that they got inferior bids compared to VBS. The "full service" process goes like this: you call them up to ask them to put a CD out for bids, they call you back later when you're in a meeting, you play phone tag for a while, and then you finally get to hear the bids and decide whether to accept. On a number of occasions I declined the bids, but on one interesting occasion I declined the bids and argued that the CD ought to be getting better bids. The next day they called me with a bid that was about 2 points higher. Since this was a $100,000 CD, that meant a few thousand dollars more for being a thorn in their side. Note: declining bids didn't get me a better price, declining and complaining did.

Another anecdote is that I tried several times to sell a CD through a full service broker and got no bids above par. I transferred the CD to VBS and they put it out for bids, got six bids, and the top bid was about 2 points above par. Again, that was a few thousand dollars for my trouble.

A final point of interest (thank you, I'll be here all week) is that when I sold that CD through VBS I immediately saw it offered at the VBS bond desk for 0.7 points above what I had sold it for. To recap: no bids above par at full service broker, sold for about 2 points above par at VBS, and then on offer at about 2.7 points above par. Ah, the life of the bond trader.

In case you're wondering why the heck I'm buying and selling long-term CDs, especially given these bid-ask spreads: as trustee and executor for some elderly persons, I purchased long-term CDs in their trusts, planning to liquidate them by death put upon their deaths. When the owner has only a short time to live, you might as well buy 20-year CDs to get the highest rate. As it turned out, interest rates dropped after everyone said they had nowhere to go but up, so instead of exercising the death puts I sold them at premiums.

Finally, VBS has a nice feature that allows you to check with a single click whether any bids are out for the CDs you hold.


Thanks a lot, especially that "full service" brokers may not be better (or not as good) as the do it yourself Vanguard Brokerage services (which I use to manage about $1 million in an organization's CDs). I did not want to go with a "full service" broker for CDs because I did not want the phone calls "selling" something or another.

We ususally do not sell before maturity, but I did it one, primarily to see how it worked (as well as lock in a modest gain). I did see the same CD for sal very shortly after the sale.
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Postby vst » Wed Feb 03, 2010 10:57 pm

which broker do you recommend with the best CD prices (inclusive of commissions)?
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Postby comptalk » Thu Feb 04, 2010 5:35 am

My CDs from Morgan Stanley pay anywhere from 5% - 9%. They were mostly bought over the last year and all FDIC insured.
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Postby vst » Thu Feb 04, 2010 9:45 am

comptalk wrote:My CDs from Morgan Stanley pay anywhere from 5% - 9%. They were mostly bought over the last year and all FDIC insured.


how much over par did you pay for your cds or were they mostly at par?
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Re: Brokered CDs from different brokers?

Postby tfb » Thu Feb 04, 2010 10:20 am

dm200 wrote:Are there any signifcant differences between brokers in purchasing brokered CDs? Are better rates and terms available from some brokers? Is there a different inventory, depending on the broker? Are there any cost differences, when buying new issues?

You can see the inventory at the popular online brokers. Vanguard and E*Trade use BondDesk. As a result, they have identical inventory for their new CDs. Fidelity and Schwab don't use BondDesk. They don't sell CDs from Puerto Rico banks which offer the top rates at Vanguard and E*Trade. There are significant overlaps in inventory at these four brokers.
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Postby comptalk » Thu Feb 04, 2010 2:29 pm

Everything was purchased at par, but the price does fluctuate. At maturity, I get the full value of the note back. I receive the dividend s monthly.
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Postby vst » Thu Feb 04, 2010 4:25 pm

comptalk wrote:Everything was purchased at par, but the price does fluctuate. At maturity, I get the full value of the note back. I receive the dividend s monthly.


you have 9% FDIC insured CDs at par?

5 - 6% is available, but 9%??? Really? Which banks?
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Postby comptalk » Thu Feb 04, 2010 4:56 pm

Yes, but they are linked to say the S & P, LIBOR, and different interest rates. The principal is 100% guaranteed. And you are given a guaranteed rate for a set number of years. After that it floats, but can never be less than 4%.
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Postby Bob's not my name » Thu Feb 04, 2010 10:07 pm

Those are structured CDs. I've never read anything good about them.

http://www.bankrate.com/finance/cd/stru ... tment.aspx
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Postby LadyGeek » Thu Feb 04, 2010 11:30 pm

You need to pay careful attention to how the brokered CD is titled. Brokered Deposits / CDs -- Proper Documentation.

Some caveats have recently been added to the wiki.

Please see Certificate of Deposit on the Bogleheads Wiki.
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Postby comptalk » Fri Feb 05, 2010 12:14 am

Yep, but never had a problem with them.
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Postby vst » Fri Feb 05, 2010 1:54 am

comptalk wrote:Yep, but never had a problem with them.


I love when people say that.

Just because you didn't have a problem in the past, does NOT mean you will not have problems in the future if you don't cross all your t's and dot all your i's.

Just ask those smart Stanford CD investors what they wished they could have done had they only knew what they know now.

You gotta follow the rules in order to make sure you are fully insured. Don't trust your broker to do it for you.
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Postby comptalk » Fri Feb 05, 2010 5:49 am

What part of FDIC principal insurance don't you get? Stanford was in the Caribbean. These are from BNY, Morgan Stanley and WFC. Get your facts right.
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Postby vst » Fri Feb 05, 2010 6:14 pm

comptalk wrote:What part of FDIC principal insurance don't you get? Stanford was in the Caribbean. These are from BNY, Morgan Stanley and WFC. Get your facts right.


No, you should get YOUR facts right. I never said anything about Stanford's bank being FDIC insured. I said, I love it when investors fail to cross their t's and dot their i's and just assume their brokers are out there to protect them.

The SEC and FDIC issued rules on what investors must do to make sure their cds are titled correctly. The attitude of the majority here is that they have never had a problem so they do not care. My response was simple: the majority of investors are clueless and careless. That's how we had a "Stanford" type catastrophe.

Follow the rules for FDIC insurance and you'll be just fine. Pretend you're somehow insulated and live in your broker's "bubble" and you may get burned.
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