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Brokered CDs: Simple and Safe

Use them for a hassle-free, one-stop shop for great rates.

Like so many investors today, Mark Koscinski of Branchburg, N.J., wanted a hassle-free, insured place to park his cash. A nine-month ladder of certificates of deposit that his adviser assembled "was someplace safe, given the way the economy is going," he says. "And it offered a better yield than a Treasury bill."

You can create your own CD ladder, sans broker, but it takes time and patience. You must search for the best rates, fill out multiple applications, and keep track of the balances and maturity dates. When your adviser or broker purchases CDs through a single custodian, the data is consolidated on a single monthly statement; transferring funds takes only a phone call.

To guarantee Federal Deposit Insurance Corp. coverage, cap the value of all CDs issued by a single bank at the FDIC limits, which will drop from $250,000 to $100,000 on January 1, 2010. If you buy a CD worth more than $100,000 and it hasn't matured by then, any amount above the limit will be uninsured unless Congress acts.

Brokered CDs don't always have the best rates, so it's worth checking at banks. You can redeem brokered CDs early without penalty, but their value fluctuates depending on market interest rates (if you sell before maturity and rates have risen, you may get back less than you invested).

If your broker suggests a CD with an attractive rate selling in the secondary market at a premium, make sure the bank is solvent. If it fails, the FDIC will pay only face value.