Are you looking to add stability and predictable income to your investment portfolio? Certificates of Deposit (CDs) offered through Merrill Edge can be an excellent option for you! Whether you're a seasoned investor or just starting, understanding how to navigate the process of buying CDs on Merrill Edge is crucial. This comprehensive guide will walk you through every step, from understanding what brokered CDs are to placing your first order.
Why Consider CDs on Merrill Edge?
Merrill Edge provides access to "brokered CDs," which differ from traditional bank CDs. Here's why they might be a good fit:
Wider Selection: You're not limited to the CDs offered by a single bank. Merrill Edge gives you access to a vast array of CDs from various banks across the U.S., allowing you to compare and choose the most competitive rates and terms.
Convenience: Manage all your investments, including CDs, within a single Merrill Edge brokerage account.
FDIC Insurance: Just like traditional bank CDs, brokered CDs offered through Merrill Edge are FDIC-insured up to the applicable limits ($250,000 per depositor, per insured bank, for each account ownership category). This allows you to spread your investments across multiple banks to maximize your FDIC coverage.
Secondary Market Liquidity: While CDs are generally meant to be held to maturity, brokered CDs may offer the ability to sell them on the secondary market before maturity if you need access to your funds. However, keep in mind that the market value of a brokered CD can fluctuate, and you may receive less than your original investment if you sell before maturity.
Let's dive into the step-by-step process!
Step 1: Do You Have a Merrill Edge Account? If Not, Let's Get You Set Up!
This is your very first and most important step! You can't buy CDs on Merrill Edge without an account. Already have one? Great, you can skip to Step 2!
If you don't, no worries, opening an account is a straightforward process. Merrill Edge offers various account types, including:
Self-Directed Investment Account: This is the most common choice for those who want to manage their own investments, including CDs.
IRA (Individual Retirement Account): You can also hold CDs within a Traditional or Roth IRA on Merrill Edge, which offers tax advantages for retirement savings.
Managed Accounts: If you prefer professional guidance, Merrill Guided Investing accounts are an option, though you'll generally be investing in ETFs and mutual funds rather than individual CDs directly.
How to Open a Merrill Edge Account:
Visit the Merrill Edge Website: Go to the official Merrill Edge website (merrilledge.com).
Click "Open an Account": You'll typically find a prominent button for this on the homepage.
Choose Your Account Type: Select the type of account that best suits your investment goals (e.g., Self-Directed Individual Brokerage).
Provide Your Information: Be prepared to provide personal details such as:
Social Security Number
Date of Birth
Valid Mailing and Email Address
Employment Information (annual income, household net worth)
Beneficiary Information (if applicable)
Fund Your Account: Once your account is open, you'll need to fund it. You can do this by:
Electronic Funds Transfer (ACH): Link your bank account for easy transfers.
Wire Transfer: For larger amounts, wire transfers are an option.
Check Deposit: Deposit checks via mail or the mobile app.
Account Transfer: Transfer an existing brokerage account from another institution.
The account opening process can take just a few minutes online, but funding may take a few business days depending on the method.
Step 2: Navigating to the CD Screener and Researching Your Options
Once your Merrill Edge account is open and funded, it's time to start looking for CDs!
Sub-heading: Accessing the Fixed Income Screener
Log In to Your Merrill Edge Account: Use your credentials to log in to the online platform.
Navigate to the "Research" Tab: On the top navigation bar, you'll typically find a "Research" or "Markets & Research" tab. Click on it.
Select "Fixed Income": Within the Research section, look for "Fixed Income" or "Bonds & CDs." This will take you to the fixed income trading platform.
Find the "CD Screener": Merrill Edge provides a dedicated CD Screener tool. This is where you'll filter and find suitable CDs.
Sub-heading: Understanding Brokered CD Features and Filtering
The CD Screener will allow you to apply various filters to narrow down your choices. Here are key features to consider and how to use the screener effectively:
Term (Maturity Date): This is the length of time your money will be locked in. Merrill Edge offers a wide range of terms, from a few months to several years (potentially up to 20 years for some brokered CDs). Consider your financial goals and when you might need the funds.
Shorter terms offer more liquidity but generally lower rates.
Longer terms often provide higher interest rates but less liquidity.
Yield (Interest Rate): This is the return you'll earn on your investment. Look for the Annual Percentage Yield (APY) to compare different CDs accurately. Rates can vary significantly based on term, issuer, and market conditions.
Issuer/Bank: Brokered CDs are issued by various banks. You can filter by specific banks or view all available options. Remember FDIC insurance limits apply per bank, so diversifying across different banks can maximize your coverage.
Coupon Frequency: This determines how often you receive interest payments (e.g., monthly, semi-annually, at maturity).
Callable vs. Non-Callable: This is a very important distinction:
Non-Callable CDs: The issuer cannot redeem the CD before its maturity date. You are guaranteed to receive your principal and interest for the full term. These are generally preferred for predictable income.
Callable CDs: The issuer has the option to redeem the CD before its maturity date, typically when interest rates decline. If a CD is called, you'll receive your principal back, but you'll need to reinvest it at potentially lower prevailing rates. Callable CDs often offer a slightly higher yield to compensate for this risk. Be sure to understand if a CD is callable before purchasing.
Minimum Purchase Quantity: Brokered CDs generally have a minimum purchase amount, typically $1,000, and often come in multiples of $1,000.
CUSIP Number: If you have a specific CD in mind, you can search by its CUSIP (Committee on Uniform Securities Identification Procedures) number.
Spend time thoroughly reviewing the options. Don't just jump at the highest rate; consider the term, call features, and the issuing institution.
Step 3: Placing Your CD Order
Once you've identified the CD(s) you want to purchase, it's time to place your order.
Sub-heading: Initiating a Fixed Income Trade
From the Screener: Often, you can directly select a CD from the screener results and initiate a trade from there.
Alternatively, Navigate to the "Trade" Tab: On the top navigation bar, click on "Trade" and then select "Fixed Income."
Enter CD Details: If you're not coming directly from the screener, you'll need to input details like:
CUSIP or Issuer Name: This will help locate the specific CD.
Quantity: This refers to the number of CDs you want to buy. Since CDs typically have a par value of $1,000, a quantity of "1" means $1,000, "5" means $5,000, and so on. Be careful with this field, as some users have reported confusion with the "quantity" referring to the total dollar amount in some interfaces. If you intend to buy $5,000 worth of CDs, ensure the quantity reflects that (e.g., 5 units of $1,000 par value).
Price: CDs are often traded at or near their par value ($100 per unit, or $1,000 for a typical CD).
Review Order Details: Before submitting, carefully review all the details of your order, including:
The CD's maturity date
The interest rate (yield)
The total principal amount
The settlement date (when the trade officially processes and interest begins accruing)
Any associated fees (Merrill Edge may have a transaction fee for brokered CDs, though often it's incorporated into the price).
Sub-heading: Understanding the Order Process
Market Orders vs. Limit Orders: For CDs, you'll typically place a "market order" or an "all-or-none" order if available. A market order executes at the best available price at that moment.
Trade Confirmation: After placing your order, you'll receive a trade confirmation. This document outlines all the specifics of your CD purchase.
Settlement: It takes a few business days for the trade to settle. Interest typically begins accruing from the settlement date.
Step 4: Managing Your CDs and Planning for Maturity
Once you own CDs, Merrill Edge provides tools to monitor your investments.
Sub-heading: Monitoring Your CD Holdings
Account Statements: Regularly review your Merrill Edge account statements. They will list your CD holdings, accrued interest, and maturity dates.
Online Portfolio View: Your online portfolio on Merrill Edge will show your CD holdings, their current value (which can fluctuate in the secondary market), and estimated income.
Accrued Interest: Be aware that interest on brokered CDs may not compound within the CD itself. Instead, it's often paid out to your linked cash account at regular intervals (monthly, semi-annually) or at maturity. You'll need to manually reinvest this interest if you wish to compound your returns.
Sub-heading: Planning for CD Maturity
No Automatic Renewal: Unlike many traditional bank CDs, brokered CDs on Merrill Edge typically do not auto-renew. This means when your CD matures, the principal amount will be deposited into your Merrill Edge cash management account.
Reinvestment or Withdrawal: Before maturity, you'll receive a notice. You'll then have the option to:
Reinvest: Purchase a new CD (or other investment) with the matured funds.
Withdraw: Transfer the funds to a linked bank account.
CD Laddering: A popular strategy is "CD laddering." This involves buying multiple CDs with staggered maturity dates (e.g., a 1-year, 2-year, 3-year CD). As each CD matures, you reinvest the funds into a new, longer-term CD (e.g., a 3-year CD). This strategy:
Increases liquidity by having funds mature regularly.
Allows you to take advantage of rising interest rates as you reinvest maturing funds.
Helps smooth out interest rate risk by not locking all your money into a single term.
Step 5: Understanding Risks and Considerations
While CDs are generally considered low-risk investments, it's important to be aware of potential considerations:
Interest Rate Risk: If interest rates rise after you purchase a CD, you might miss out on earning higher returns with new CDs. Conversely, if rates fall, your locked-in rate is beneficial.
Liquidity Risk: While brokered CDs can be sold on the secondary market, there's no guarantee of a liquid market, and you may receive less than your original investment if you sell before maturity, especially if interest rates have risen. Early withdrawals from traditional bank CDs typically incur penalties, but brokered CDs generally don't have early withdrawal penalties per se, but rather market risk if sold.
Call Risk (for Callable CDs): As mentioned, callable CDs can be redeemed by the issuer before maturity. This typically happens when interest rates fall, forcing you to reinvest at a lower rate.
Frequently Asked Questions (FAQs)
How to choose the right CD term on Merrill Edge?
Consider your financial goals and when you anticipate needing the funds. Shorter terms (e.g., 3-12 months) offer more flexibility and quicker access to your money, while longer terms (e.g., 3-5 years or more) generally offer higher interest rates for locking in your funds for a longer period.
How to find the best CD rates on Merrill Edge?
Utilize the "Fixed Income Screener" under the "Research" tab on Merrill Edge. Filter by term, callable/non-callable, and issuer to compare available rates and yields. Rates are updated regularly.
How to understand the minimum purchase for CDs on Merrill Edge?
Most brokered CDs on Merrill Edge have a minimum purchase of $1,000. When entering your order, the "quantity" usually refers to the number of $1,000 units (e.g., quantity of 5 means a $5,000 investment).
How to differentiate between brokered CDs and traditional bank CDs?
Brokered CDs are purchased through a brokerage like Merrill Edge from various banks, offering a wider selection and secondary market liquidity. Traditional bank CDs are bought directly from a single bank and usually incur penalties for early withdrawal. Both are FDIC-insured.
How to tell if a CD is callable on Merrill Edge?
The CD details within the screener and trade confirmation will clearly indicate if a CD is "callable" or "non-callable." Always verify this feature before purchasing.
How to get interest payments from my Merrill Edge CD?
Interest on brokered CDs is typically paid out to your linked Merrill Edge cash account at specified intervals (e.g., monthly, semi-annually) or at maturity, rather than compounding within the CD itself.
How to handle a CD when it matures on Merrill Edge?
Brokered CDs on Merrill Edge do not automatically renew. Upon maturity, the principal will be deposited into your Merrill Edge cash account, and you can then choose to reinvest it in a new CD or other investment, or withdraw the funds.
How to sell a CD before maturity on Merrill Edge?
You can attempt to sell a brokered CD on the secondary market through your Merrill Edge account. However, the price you receive will depend on market conditions, and you may receive less than your original investment, especially if interest rates have risen since your purchase.
How to use a CD ladder strategy with Merrill Edge?
Divide your investment into segments and buy CDs with staggered maturity dates (e.g., 1-year, 2-year, 3-year). As each shorter-term CD matures, reinvest the principal into a new, longer-term CD to maintain the ladder and take advantage of potentially higher long-term rates while retaining liquidity.
How to get help if I have questions about buying CDs on Merrill Edge?
Merrill Edge offers customer support via phone and online chat. You can also schedule an appointment with a Merrill advisor for personalized assistance.
