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I have an IRA at Fidelity, and was looking into rates I could get for new issue CDs. I found that the best rate offered for a 1 year CD was 0.3%. I was surprised by this, as I currently have a (non-IRA) high yield savings account that pays 1.05%. I then did a search on BankRate.com for CDs, and found that the best 1-year CD rate offered was 0.99%.

I took a look at ETrade as well and found that the CDs they offer have similar rates to Fidelity.

Why do CDs from a brokerage seem to pay so much less than CDs bought directly from a bank?

(I'd also be interested in understanding why CDs are currently paying less than savings accounts, since there is more liquidity/less commitment with a savings account.)

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Savings accounts may have higher yields since the financial institution is trying to attract more deposits. Additionally, what fees exist on a savings account that wouldn't likely be the case for a CD? If a bank with a savings account is charging $5/month as a maintenance fee, are you properly factoring that into the overall yield?

Another factor here is what choices do these places have. Banks generally could have their own internal resources to use the capital taken in whether deposits or CDs while brokerage firms may not focus on this kind of investment or have more fees that make the yields lower.

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  • Brokerage firms will usually sell you CDs issued by other banks, on the open market, though. It's not a question of whether the brokerage has resources, it's a question of whether or not the CDs are authorized for sale on the market by arbitrary banks.
    – user296
    Feb 4, 2013 at 21:46

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