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If you purchase a CD from a bank on the Schwab list, what happens when it matures?
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I'll be interested to hear others thoughts. I've purchased 5 CDs through Schwab's 'select new offerings' group in the last 6 months, all 9 to 18 month in duration . All I've looked for is yield, date they mature and that they are FDIC insured.
If you purchase a CD from a bank on the Schwab list, what happens when it matures? Are the proceeds somehow automatically transferred back to the brokerage account at Schwab, or do they remain in an account at the bank that issued the CD?
As far as the safety of foreign banks, I think it is up to the individual. All these CD's are FDIC insured, so I don't have a problem with them. I'll admit that given the choice of 2 or more comparable CD's (which is often the case when I've purchased) I will take the US bank over the foreign IF the yield and maturity date is equivalent. So far I have only 1 foreign from a bank in Israel I'm told. To each their own on that one though. I can understand the extra caution I guess.
OK, thanks for the clarification on "One-Source". Here's some additional info for you- I've been looking at CD info on the Schwab site, and it appears that no actual "individual" CD account is being established at the issuing bank. Rather, the CD is shown as an asset in your Schwab Brokerage account. At maturity, it transmogrifies from the CD to a cash deposit in the brokerage account. That's a good setup, as it avoids creating "orphan accounts" at a number of other banks.
I'm guessing that Schwab probably establishes one master account at the issuing bank, as a bookkeeping entry, and then subdivides that account at Schwab brokerage into the brokerage accounts of the individual CD holders.
By the way, I downloaded Schwab's detailed info on the setup, and they make a point of stating that they (Schwab) do not assume ANY responsibility for the individual CD: "Each CD constitutes a direct obligation of the Issuer and is not, either directly or indirectly, an obligation of Schwab."
I just bought a CD through "One-Source", and I'll be checking my brokerage account to verify that this setup works as described above. If there's any problems I'll let you know.
If you're drawing interest for cash flow, then monthly interest makes sense. Otherwise you're incurring reinvestment risk by getting monthly interest payments. That can be a plus in a rising rate environment, but is still a nuisance to deal with. FDIC insurance covers accrued interest, so in that sense it doesn't matter whether the interest is actually paid or not.
Brokered CDs may in theory be tradeable, but then like bonds you're putting principal at risk. Often they do not allow for early withdrawal, even with a penalty. So that's another potential downside of brokered CDs.
I know someone who, during the S&L collapse in the 80s, would buy CDs from Texas banks (where many of the highest interest rates and highest failure rates were). His banks not infrequently failed, but come the next Monday he'd have access to his money that had been moved to a new bank. Personally, I wouldn't be concerned about whether an FDIC-insured bank was based in the US or abroad.
ISTM the main advantage of brokered CDs is that it's easy to add them to an IRA account at a brokerage.
For me, the main advantage of brokered CDs is the ability to position deposits in different banks so as to avoid the FDIC insurance limits. Locally we use First Republic (a great bank!), and we're pretty close to the limit there.
So far, Wells Fargo is pretty much at the top for yield, and they pay monthly. I did have a CD (or two?) from a China bank, but when they came due I replaced it with a WF CD.