Bank hopping and signing up for CDs at multiple banks can be an effective way to get the best CD rates and maximize the returns on your cash. But does getting the best CD rates have to be this complicated and cumbersome? In this article, we’ll show you a better way to manage multiple bank CDs by utilizing a single brokerage account with brokered CDs.
Should I Hold CDs at Multiple Banks?
Holding CDs at multiple banks is typically done to get the best CD rates from various banks. Different banks will offer different CD rates for various maturities, and you can find and select the best rates that suit you. As an example, you may use two banks where one bank offers a higher 6-month CD rate and the other has a higher 1-year rate.
However, having multiple accounts at different banks can also be a hassle. If you’re signing up with a bank for the first time to take advantage of a good CD rate, you may encounter minimum deposit requirements and restrictions on withdrawals or transfers.
Luckily, there is a better solution with brokered CDs.
Maximize Your Yield With Brokered CDs
Brokered CDs are remarkably similar to traditional bank CDs. Brokered CDs are bank CDs purchased on a brokerage platform such as Fidelity, Vanguard, or TD Ameritrade. Brokered CDs offer the same FDIC insurance as bank CDs but pay higher rates. Generally speaking, there’s no reason to choose bank CDs over brokered CDs unless you are intent on only using your bank, at the expense of more income. Your brokerage aggregates all the best CD rates to purchase in one place.
A brokerage will list thousands of CDs from different banks. Instead of opening and managing accounts at different banks, you can simply search, filter, and find the best CD rates from thousands of different banks with a single brokerage account. Consolidating your CD investments in one place will make it easier to keep track of your funds, and allow you to do more complex things such as building a CD ladder.
Importantly, brokered CDs offer better rates than traditional bank CDs. The higher rates are because brokerage firms have much wider access to a broader range of banks, more negotiating power to get better terms and compete with other brokerages to offer the best rates to their clients.
Each bank CD you buy at a brokerage is also insured up to $250,000.
Bank Hopping Is Inefficient
Bank hopping can be inefficient and time-consuming due to the challenges of managing multiple CDs across different banks. It can be frustrating to keep track of different maturity dates, minimum deposit requirements, and interest rates. You probably need a photographic memory or a very meticulous spreadsheet to manage multiple banks. Constantly moving money between banks can also eat up valuable time.
As individuals who desire freedom, we want a more efficient way to maximize our CD returns without the hassle of bank hopping. Managing all your CDs and funds in one brokerage account gives you the opportunity to take advantage of higher rates, ease of use, and flexibility and liquidity with your cash.
A Case Study of Bank Hopping vs. Brokered CDs
Let’s go through a real-life example of how you can use brokered CDs instead of bank hopping.
Maximizing CD Rates With Bank Hopping
Let’s say you want to invest $20,000 with $10,000 in a 1-year CD and another $10,000 in a 5-year CD. You find Bank A offers a rate of 4.5% for the 1-year CD and 4.8% for the 5-year CD. Across the street, bank B is running a promotion that offers a rate of 4.4% for a 1-year CD and 4.9% for a 5-year CD.
To maximize your returns, you decide to split your investment equally between the two banks, investing $10,000 in Bank A’s 1-year CD, and $10,000 in Bank B’s 5-year CD. This can be done on a single platform like Merrill Edge, a brokerage that offers CD rates that are much higher than its parent company Bank of America.
With bank hopping, you would need to open separate accounts at both Bank A and Bank B. This means going through the process of filling out multiple applications, providing identification and personal information, and potentially meeting minimum deposit requirements. You would also need to keep track of two separate accounts, including login credentials, account numbers, and maturity dates.
When your 1-year CD matures after 1 year, you need to determine your next step. If Bank B is offering a higher rate on the 1-year CD now, you might want to move your funds over. But wait, maybe Bank A has restrictions on withdrawals or transfers, and you would need to ensure that you meet any required notice periods or penalties.
Maximizing CD Rates With Brokered CDs
With brokered CDs, you can use a single brokerage account to invest in CDs from multiple banks. You see both Bank A and Bank B’s 1-year and 5-year CDs in a single place and decide to use the $20,000 you have on your brokerage and invest in the highest rates. In fact, you also see Bank C which offers an ever higher 5-year rate than Bank B. Why not go for that?
You can search and compare rates from different banks on the brokerage platform and select the best options for your investment. You only need to open and manage one account, eliminating the need for multiple applications and login credentials.
When the CDs mature, you can easily withdraw your funds from the brokerage account without having to navigate the individual withdrawal processes of multiple banks. This saves you time and effort, allowing you to focus on maximizing your returns.
It’s Easier to Build a CD Ladder with Brokered CDs
In the case of a CD ladder, you buy multiple CDs with different maturity dates to maximize your liquidity and take advantage of higher interest rates in the future.
Building a CD ladder with different banks requires you to open an account at each bank to create your CD ladder. For example, you may need to open accounts at Bank A, Bank B, and Bank C, each with different maturity dates for your CDs.
On the other hand, building a CD ladder at your brokerage is easy. With all your cash in one brokerage, you can easily search for different CDs with various maturities from many banks. Managing your CD rungs in a single platform makes it easy to withdraw funds when CDs mature and reinvest them in new CDs.
Brokered CDs Are Simpler Than Bank Hopping
Many people will compare rates across savings accounts and high-yield savings accounts. Opening CDs at multiple banks can help us find the best rates while staying within FDIC coverage limits.
However, buying CDs from a brokerage offers the best of both worlds, with higher rates and better liquidity. If you are researching bank CDs, we strongly suggest taking a look at your brokerage and see what CD rates they offer!
