Charles Schwab is a brokerage company that offers brokered certificates of deposit (CD) through its Schwab CD OneSource platform.
In contrast to the traditional bank CDs that are offered directly from banks, brokered CDs are issued by banks but are available to purchase through investment and brokerage firms, such as Charles Schwab, Vanguard and other similar firms.
As of February 13, 2024, Schwab is advertising the following rates on its brokered CDs, although terms on Schwab’s brokered CDs range from one month to 20 years:
| Term | APY | Minimum deposit |
|---|---|---|
3 months | Up to 5.36% | $1,000 |
6 months | Up to 5.22% | $1,000 |
9 months | Up to 5.28% | $1,000 |
18 months | Up to 4.85% | $1,000 |
What are certificates of deposit (CDs)
CDs are financial products issued by banks, credit unions and some brokerage firms, like Schwab, that offer fixed interest rate payments for a specific time, called a term.
Unlike traditional bank CDs, Schwab sells brokered CDs that are issued by hundreds of banks and credit unions to investors through its Schwab CD OneSource platform. This provides for a flexible platform for CD rates and length of deposits. Schwab’s annual percentage yields (APYs) can compete with Vanguard CD rates and other large financial services companies such as Fidelity.
In exchange for keeping your money locked away at a bank for the term of the CD, rates are often higher than those on savings accounts and money market accounts.
Brokered CDs have two important advantages over buying CDs from a bank or a credit union. First, they allow investors an opportunity to obtain CD issues from several banks with competitive rates. Second, they allow investors to choose from fixed-rate and variable-rate CDs. An investor can often find stronger interest rates with a brokered CD through Schwab than by opening one directly with a bank.
On the downside, brokered CDs at Schwab apply fees for secondary trades. Also, if an investor decides to sell the CD before the end of the term, they may not get the same price they paid for the CD originally, as brokered CD values can fluctuate with market conditions. Brokered CDs also differ in that interest does not compound as it does with a bank CD but is paid into your brokerage account.
Overview of Charles Schwab CD rates
With a wide variety of brokered CDs from banks across the United States, it’s easy for investors to compare offerings by yield, maturity and the issuing institution. Generally, Charles Schwab CD rates are much higher than the CD rates from traditional banks, which tend to offer less than the current national averages. Banks such as Citi, Bank of America, Wells Fargo and others offer decent rates, but not as strong compared to those offered through Schwab CD OneSource. The top-rated online banks tend to offer high returns, which are comparable with Charles Schwab CD rates.
Charles Schwab CD account safety and insurance
Brokered CDs from Schwab are insured up to $250,000 per depositor, per institution, by the Federal Deposit Insurance Corp. (FDIC), as they are from FDIC-insured banks. The issuing bank, not the broker, carries the FDIC insurance. So if you own one CD from one bank and a different CD from another bank, both are insured per institution for a total coverage amount of $500,000.
How to calculate your earnings with Charles Schwab CDs
Responsible investors want to know what they are getting for their money before they commit it. But remember that with a brokered CD, the earnings are not compounded like in a bank CD but are deposited into your brokerage account. Therefore your earnings on a brokered CD may be slightly lower than they would on a CD from a bank or credit union with the same interest rate.
For example, $10,000 invested into a six-month CD at Schwab’s current 5.17% APY would return about $255 over the term.
Alternatives to Charles Schwab CDs
CDs generally have the advantage of paying higher yields because investors deposit the money for a fixed term, unlike other financial instruments. However, some alternatives to CDs, particularly for investors who do not want to deal with the complexities of brokered CDs, include high-yield savings accounts, money market accounts, bonds and dividend-paying stocks.
High-yield savings and money market accounts offer higher yields than regular savings accounts and are also FDIC-insured. Bonds are debt securities issued by companies or governments, offering fixed interest payments. Bonds are less risky than stocks but are not FDIC-insured. Dividend-paying stocks can earn a higher yield than CDs and also have the potential to appreciate, but there is no protection from loss.
Frequently asked questions (FAQs)
Yes. All CDs offered through Schwab CD OneSource are issued by banks insured by the FDIC. Of course, it can’t hurt to check with the broker and the bank to verify total coverage limits before depositing money into one or more CDs from different banks.
The minimum investment for Schwab CDs through Schwab CD OneSource is $1,000. You can also make additional purchases in increments of $1,000.
Charles Schwab CDs do not have early withdrawal penalties because they are brokered CDs. If you decide you want or need the money you’ve invested in a brokered CD, you’ll need to sell it on the secondary market, where it may be valued lower than your initial purchase amount.
