Can brokered CDs lose money?
Can brokered CDs lose money?
Hi,
I purchased several CDs for the first time this fall in my Schwab brokerage. These are new issue, not purchased on the secondary market, and from either Discover or Schwab. They range from 1 year, 18m, or 2 year CDs with interest rates between 4.5 - 5%.
When I peak in my account, I can't help but notice that one of these has lost value. We are talking like a dollar so I'm not losing sleep over it, just wanting to understand the product I bought. It is a one year CD and the only thing that appears different for this CD vs. the others I purchased is that this one's coupon rate is at maturity, where as the others are semi-annual. I suspect this is the source but am curious... will it still return the 4.55% interest rate by maturity?
Thank you.
I purchased several CDs for the first time this fall in my Schwab brokerage. These are new issue, not purchased on the secondary market, and from either Discover or Schwab. They range from 1 year, 18m, or 2 year CDs with interest rates between 4.5 - 5%.
When I peak in my account, I can't help but notice that one of these has lost value. We are talking like a dollar so I'm not losing sleep over it, just wanting to understand the product I bought. It is a one year CD and the only thing that appears different for this CD vs. the others I purchased is that this one's coupon rate is at maturity, where as the others are semi-annual. I suspect this is the source but am curious... will it still return the 4.55% interest rate by maturity?
Thank you.
Re: Can brokered CDs lose money?
No, if you hold the CDs to maturity. The value shown reflects what you may get if you choose to sell your CD today. If you keep your CDs to maturity, you will get the promised x% in interest too.kmd22 wrote: ↑Thu Jan 26, 2023 4:38 pm Hi,
I purchased several CDs for the first time this fall in my Schwab brokerage. These are new issue, not purchased on the secondary market, and from either Discover or Schwab. They range from 1 year, 18m, or 2 year CDs with interest rates between 4.5 - 5%.
When I peak in my account, I can't help but notice that one of these has lost value. We are talking like a dollar so I'm not losing sleep over it, just wanting to understand the product I bought. It is a one year CD and the only thing that appears different for this CD vs. the others I purchased is that this one's coupon rate is at maturity, where as the others are semi-annual. I suspect this is the source but am curious... will it still return the 4.55% interest rate by maturity?
Thank you.
Re: Can brokered CDs lose money?
If you hold it to maturity, then no, it will pay the full par value back at maturity (plus the interest you collect along the way).
But if you choose to sell early, then the price could fluctuate up or down depending on movements in interest rates.
But if you choose to sell early, then the price could fluctuate up or down depending on movements in interest rates.
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Re: Can brokered CDs lose money?
from the wiki:
I find it good practice to ask questions before buying things I don't understand. Always check the wiki first.Brokered CDs are intended to be held until maturity.[note 1] CDs may be sold prior to maturity on the secondary market (which may be limited). All brokered CDs will fluctuate in value between purchase date and maturity date. Thus, any CD sold prior to maturity may be subject to a substantial gain or loss. A brokered CD's value can decline due to rising interest rates, and longer maturities have higher interest rate risk. See: Vanguard cd question [Brokered CDs] (forum discussion) for additional information. Ask in the forum if you are unsure.
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Re: Can brokered CDs lose money?
They could lose money if you sell them before maturity and rising rates have lowered their value. If you hold to maturity they will return principal plus remaining interest payments.
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Re: Can brokered CDs lose money?
Rest assured. You will get the 4.55%.kmd22 wrote: ↑Thu Jan 26, 2023 4:38 pm Hi,
I purchased several CDs for the first time this fall in my Schwab brokerage. These are new issue, not purchased on the secondary market, and from either Discover or Schwab. They range from 1 year, 18m, or 2 year CDs with interest rates between 4.5 - 5%.
When I peak in my account, I can't help but notice that one of these has lost value. We are talking like a dollar so I'm not losing sleep over it, just wanting to understand the product I bought. It is a one year CD and the only thing that appears different for this CD vs. the others I purchased is that this one's coupon rate is at maturity, where as the others are semi-annual. I suspect this is the source but am curious... will it still return the 4.55% interest rate by maturity?
Thank you.
In the meantime, the value will fluctuate based on rates. As maturity approaches, the value will converge back to par and you will end up with the 4.5% interest rate.
Re: Can brokered CDs lose money?
The CDs might show a negative return on your brokerage account, but that is only if you sell at the market rate for that day. Otherwise, they redeem at par value + interest at maturity. You just need to ignore the red on your statement.kmd22 wrote: ↑Thu Jan 26, 2023 4:38 pm Hi,
I purchased several CDs for the first time this fall in my Schwab brokerage. These are new issue, not purchased on the secondary market, and from either Discover or Schwab. They range from 1 year, 18m, or 2 year CDs with interest rates between 4.5 - 5%.
When I peak in my account, I can't help but notice that one of these has lost value. We are talking like a dollar so I'm not losing sleep over it, just wanting to understand the product I bought. It is a one year CD and the only thing that appears different for this CD vs. the others I purchased is that this one's coupon rate is at maturity, where as the others are semi-annual. I suspect this is the source but am curious... will it still return the 4.55% interest rate by maturity?
Thank you.
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Re: Can brokered CDs lose money?
Thank you for the helpful replies. I find it intriguing that it seems this one product would hypothetically not do as well on the secondary market as the others I purchased, but I haven't kept an eye on current CD rates so perhaps it is not quite as competitive. It has consistently been this one CD showing red vs. the others. Glad to know that as long as I hold it until maturity, all will be as intended.
Re: Can brokered CDs lose money?
One thing to watch out for when buying CDs is the settlement date. Sometimes they are 15 days in the future which for me (in Etrade) means I get zero interest for 15 days. So that's one way to lose money with brokered CDs.
Re: Can brokered CDs lose money?
On E Trade is the money actually swept out of your presumably dividend/interest earning settlement fund 15 days before settlement?
Per Vanguard, any monies not shown as swept out of the settlement fund continue to earn dividends until they are swept out which would not be until the settlement date. A buy is recorded prior to settlement but the actual money does not leave the settlement fund until settlement.
Per Vanguard, any monies not shown as swept out of the settlement fund continue to earn dividends until they are swept out which would not be until the settlement date. A buy is recorded prior to settlement but the actual money does not leave the settlement fund until settlement.