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What is a broker deposit?

On Behalf of | Jan 22, 2021 | Uncategorized

One investment that is right for some people in New York that is often overlooked is a broker deposit. If you have never heard of one, then you may be wondering what it is.

What happens to the collected money?

A large bank sells shares of deposits to broker-dealers. Then, these dealers sell them to the public. They are often sold as certificates of deposit. When enough is collected, then the large bank divides the deposit and sells the divided shares to smaller financial institutions.

Why do banks sell broker deposits?

In the United States, the practice is protected by the FDIC. Only well-capitalized banks can accept the deposits, unless a waiver is granted by the government. Undercapitalized banks cannot accept a share of the money at all. The advantage for the banking industry is that they can get access to large amounts of money to invest. These deposits often give banks the capital that they need to make personal and small business loans.

What advantages do broker deposits offer you?

Broker deposits usually offer a higher interest rate than you get with a normal core deposit, which can help your money grow faster. Your money is guaranteed, so you are not in danger of losing your deposited amount. Additionally, while you may pay a small penalty, you can liquidate your certificate of deposit if an emergency happens. A lawyer or financial consultant may help you decide if this is the right investment for you.

If you have money to invest, it may be important that you talk to your lawyer as well as a financial advisor. Listen carefully and ask any questions that you may have before making a final decision.