Are you looking to secure a guaranteed return on your savings with potentially higher yields than traditional bank CDs? Then buying brokered CDs on Merrill Edge might be a fantastic option for you! This comprehensive guide will walk you through every step of the process, from understanding what brokered CDs are to successfully placing your order on the Merrill Edge platform. Let's get started and unlock the potential of your money!
Understanding Brokered CDs on Merrill Edge: A Prerequisite
Before diving into the "how-to," let's clarify what brokered CDs are and why they might be a good fit for your investment strategy on Merrill Edge.
What is a Brokered CD?
A brokered CD (Certificate of Deposit) is essentially a CD issued by a bank but sold through a brokerage firm like Merrill Edge. Unlike buying directly from a bank, where you're limited to that bank's offerings, Merrill Edge aggregates CDs from various banks across the country. This gives you access to a much wider selection of interest rates and maturity terms.
Key Differences: Brokered vs. Traditional Bank CDs
Issuing Institution: Traditional CDs are issued and held directly by a single bank. Brokered CDs are issued by various banks but held in your brokerage account at Merrill Edge.
Wider Selection: Merrill Edge offers CDs from numerous banks, potentially giving you access to more competitive rates and a greater variety of terms than a single bank.
FDIC Insurance: Both are FDIC-insured up to $250,000 per depositor, per insured bank, for each account ownership category. The key here is "per insured bank." With brokered CDs, you can diversify across multiple banks to ensure more of your money is FDIC-insured if you exceed the $250,000 limit with a single institution.
Liquidity (Secondary Market): While traditional CDs often impose early withdrawal penalties, brokered CDs can sometimes be sold on a secondary market before maturity. However, the sale price can fluctuate based on market interest rates, meaning you could sell at a profit or a loss. Merrill Edge may maintain a secondary market, but it's not obligated to do so, and liquidity isn't guaranteed.
Interest Compounding: Traditional bank CDs often compound interest (interest earns interest). Brokered CDs typically pay simple interest, meaning interest is paid out at regular intervals (monthly, quarterly, semi-annually, or annually) and is not automatically reinvested back into the CD itself. If you want compounding, you'll need to manually reinvest the interest payments.
Callability: Some brokered CDs are "callable," meaning the issuing bank has the right to redeem the CD before its maturity date. Callable CDs generally offer a higher yield to compensate for this risk.
Minimum Investment: Brokered CDs typically have a minimum investment of $1,000 and are purchased in multiples of $1,000.
Step 1: Ensure Your Merrill Edge Account is Ready!
First things first, do you have a Merrill Edge brokerage account? If not, that's your starting point! You'll need an active Merrill Edge Self-Directed brokerage account to purchase brokered CDs.
Setting Up Your Account (If Needed)
Visit the Merrill Edge Website: Navigate to the Merrill Edge website.
Open an Account: Look for a prominent "Open an Account" or "Get Started" button.
Choose Account Type: Select a Merrill Edge Self-Directed Investment Account. This is crucial, as brokered CDs are held within a brokerage account, not a traditional bank account.
Provide Information: You'll need to provide personal information such as your Social Security number, date of birth, valid mailing and email addresses, and employment details (annual income, household net worth).
Fund Your Account: Once your account is open, you'll need to fund it. You can do this by linking a bank account, transferring funds, or rolling over a retirement account. Ensure you have sufficient funds available to meet the minimum purchase requirement for brokered CDs (typically $1,000).
Verifying Funds and Access
Log In: Log in to your Merrill Edge account.
Check Account Balance: Confirm that your account has the necessary funds available for your CD purchase.
Familiarize Yourself: Take a moment to navigate the Merrill Edge platform. Understanding where different features are located will make the CD purchase process smoother.
Step 2: Research and Select Brokered CDs
Now that your account is ready, it's time to find the brokered CDs that align with your financial goals. Merrill Edge provides a robust "Fixed Income Screener" for this purpose.
Accessing the Fixed Income Screener
Log in to Merrill Edge: From your account dashboard, look for a "Research" or "Investments" tab.
Navigate to Fixed Income: Under this tab, you should find a section for "Fixed Income" or "Bonds & CDs." Click on it.
Launch the Screener: Look for an option like "Fixed Income Screener" or "CD Screener." This is your primary tool for finding available CDs.
Utilizing the Screener's Features
The Fixed Income Screener will allow you to filter and sort available brokered CDs based on various criteria. This is where you can truly customize your search to find the best fit.
Essential Filters to Consider:
Maturity Date/Term:
Short-Term (e.g., 3 months to 1 year): Good for near-term cash needs or if you anticipate interest rates rising.
Mid-Term (e.g., 1 to 5 years): A common sweet spot offering a balance of yield and flexibility.
Long-Term (e.g., 5+ years, up to 20 years): Can lock in higher rates for extended periods, but less flexible if you need access to funds or if rates rise significantly.
Interest Rate/Yield: Naturally, you'll want to find the highest yield for your chosen term. Be aware that advertised yields might be APY (Annual Percentage Yield) or simple interest, depending on the CD. Brokered CDs usually pay simple interest.
Coupon Type:
Fixed Rate: The interest rate remains constant for the entire term. This is often preferred for predictability.
Callable: The issuing bank can call (redeem) the CD early. These typically offer higher yields but come with the risk of early termination. Understand the call provisions before investing.
Step-Up: The interest rate increases at pre-determined intervals during the CD's term.
Issuer/Bank: While all brokered CDs are FDIC-insured up to limits, you might have preferences regarding the issuing bank. You can often filter by issuer.
Minimum Investment: Ensure the CD's minimum investment aligns with the amount you wish to invest (typically $1,000 multiples).
Settlement Date: This is the date the CD officially begins earning interest. It might be a few business days after your order.
Tips for Effective Research:
Compare Across Terms: Don't just look at one maturity. Compare rates across different terms to see where the best value lies for your investment horizon.
Consider a CD Ladder: If you have a larger sum to invest, consider building a CD ladder. This involves buying multiple CDs with staggered maturity dates (e.g., a 1-year, 2-year, and 3-year CD). This strategy provides regular access to funds as CDs mature and allows you to capture potentially higher rates as they become available.
Read the Prospectus/Fact Sheet: Always review the specific details of any CD you're considering. This will outline the terms, call provisions, interest payment frequency, and any other important disclosures.
Step 3: Placing Your Brokered CD Order
Once you've identified the brokered CD(s) you want to purchase, the next step is to place your order.
Reviewing CD Details
Select Your Chosen CD: From the screener results, click on the specific CD you wish to buy to view its detailed information.
Verify Key Terms: Double-check the yield, maturity date, interest payment frequency, and callability to ensure it matches your expectations.
Note the CUSIP: Each security, including brokered CDs, has a unique CUSIP number. This can be helpful for referencing the specific CD.
Entering Your Order
Click "Buy" or "Trade": There will be a prominent "Buy" or "Trade" button associated with the CD. Click it.
Specify Quantity: Merrill Edge often uses "quantity" to refer to the principal amount. If the minimum investment is $1,000, and you want to invest $5,000, you would enter "5" (representing 5 x $1,000 units). Be mindful of this common source of confusion.
Choose Order Type: For brokered CDs, you'll typically place a "Market Order" or a "Limit Order."
Market Order: This will buy the CD at the best available price at the time of your order. It prioritizes immediate execution.
Limit Order: This allows you to specify the maximum price you're willing to pay for the CD (or minimum yield you're willing to accept, depending on how Merrill Edge presents it). Your order will only execute if the CD can be purchased at or below your specified price. This offers more control but may delay or prevent execution if your price isn't met.
Review Order Summary: Before submitting, a summary of your order will appear. Carefully review all details, including the total principal amount, estimated interest, and any associated fees.
Confirm and Place Order: If everything looks correct, confirm your order. You'll usually receive an order confirmation number.
What Happens After You Place the Order?
Pending Status: Your order will likely show as "pending" for a period. Brokered CDs have a "settlement date" which is when the transaction officially completes and you start earning interest. This can be a few business days after your order.
Confirmation: You will receive a trade confirmation statement once your order has been executed and settled. This document is important for your records.
Interest Payments: Interest payments will be credited directly to your Merrill Edge account according to the CD's payment schedule (e.g., monthly, quarterly).
Step 4: Managing Your Brokered CDs
Purchasing a brokered CD is just the beginning. Effective management ensures you maximize your returns and stay informed.
Monitoring Your Holdings
Account Statements: Regularly review your Merrill Edge account statements. These will show your CD holdings, accrued interest, and any interest payments received.
Online Portfolio View: Your online Merrill Edge portfolio will display your brokered CDs, often with details like maturity date and current market value (if a secondary market exists). Remember, the market value can fluctuate, but if you hold to maturity, you'll receive your principal back.
Reinvesting or Redeeming at Maturity
Maturity Notification: Merrill Edge will typically notify you as your CD approaches its maturity date.
Options at Maturity:
Redeem Principal and Interest: You can simply take the principal and final interest payment as cash into your Merrill Edge cash management account.
Reinvest: You can use the maturing funds to purchase new brokered CDs, or other investments, directly through Merrill Edge. This is where a CD ladder strategy can be very effective.
No Auto-Renewal: Brokered CDs typically do not auto-renew. Unlike some bank CDs, you'll need to actively choose how to handle your funds at maturity.
Considerations for Selling Before Maturity
While brokered CDs offer the possibility of selling on a secondary market, it's crucial to understand the implications:
Market Value Fluctuations: If interest rates have risen since you purchased the CD, its market value will likely have decreased, and you would sell at a loss. If rates have fallen, its value may have increased, allowing for a profit.
Liquidity: While a secondary market may exist, it's not guaranteed to be highly liquid. You might not be able to sell immediately or at your desired price.
Transaction Costs: There may be fees associated with selling a CD on the secondary market.
10 Related FAQ Questions
How to choose the right maturity for a brokered CD on Merrill Edge?
Consider your financial goals and when you anticipate needing the funds. Shorter terms offer more flexibility, while longer terms typically offer higher yields but tie up your money for longer.
How to ensure my brokered CD is FDIC insured on Merrill Edge?
Brokered CDs are issued by FDIC-insured banks, and your investment is covered up to $250,000 per depositor, per insured bank, for each account ownership category. Merrill Edge will provide details on the issuing bank.
How to compare brokered CD rates effectively on Merrill Edge?
Use the Fixed Income Screener and sort by yield. Pay attention to the Annual Percentage Yield (APY) if provided, but also understand that many brokered CDs pay simple interest. Compare CDs with similar terms and features (e.g., callable vs. non-callable).
How to handle interest payments from my brokered CD on Merrill Edge?
Interest payments will be credited to your Merrill Edge cash management account. You can then choose to withdraw these funds, reinvest them in other securities, or purchase new brokered CDs.
How to build a CD ladder using Merrill Edge brokered CDs?
Divide your desired investment amount into several portions. Purchase multiple brokered CDs with staggered maturity dates (e.g., 1-year, 2-year, 3-year, 4-year, 5-year). As each CD matures, reinvest the proceeds into a new long-term CD (e.g., a new 5-year CD) to maintain the ladder structure.
How to know if a brokered CD is callable on Merrill Edge?
The callability of a CD will be clearly stated in the CD's detailed information or prospectus on the Merrill Edge platform. Callable CDs often have higher yields to compensate for this feature.
How to sell a brokered CD before maturity on Merrill Edge?
If a secondary market exists, you may be able to sell your brokered CD through your Merrill Edge account. Be aware that the selling price will fluctuate with market interest rates, and you could incur a gain or loss.
How to find new issue brokered CDs on Merrill Edge?
Merrill Edge's Fixed Income Screener will typically list both new issue (primary market) and secondary market CDs. You can often filter for "new issues" specifically.
How to calculate the potential return of a brokered CD on Merrill Edge?
For a fixed-rate, non-callable CD, the return is straightforward: Principal amount x (Annual Interest Rate / Number of Payments per Year) x Number of Years (or term). Remember, brokered CDs generally pay simple interest.
How to manage taxes on brokered CD interest income from Merrill Edge?
Merrill Edge will provide you with tax forms (e.g., Form 1099-INT) detailing the interest income you received from your brokered CDs. This income is generally taxable at your ordinary income tax rate. Consult with a tax professional for personalized advice.
