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Vanguard - Information on CDs

Certificates of deposit (CDs)

CDs are deposit obligations issued by commercial banks to raise funds for their business activities. Investors lock in the market interest rate at the time of purchase, and the rate is usually fixed for the term of the CD. Vanguard Brokerage imposes a $10,000 minimum for CDs purchased through Vanguard Brokerage, with $1,000 increments thereafter.

Features:

Insurance

CDs issued by FDIC-insured institutions and held in Vanguard Brokerage accounts are generally insured up to certain limits.

  • Up to $250,000 per account owner per institution for depository assets will be insured. Additional information can be found on the FDIC website.
  • In determining the applicable insurance limits, the FDIC aggregates accounts held at the issuer, including those held through different broker dealers or other intermediaries. 
  • If you purchase a CD at a premium on the secondary market, the amount of the premium is not insured.
  • All of the CDs offered by Vanguard Brokerage are FDIC-insured.  For more information regarding FDIC coverage, please consult www.fdic.gov.

Maturities

  • Most CDs with maturities of one year or less will pay interest at maturity. CDs with maturities longer than one year normally pay interest on a semiannual basis.
  • CDs sold prior to maturity may be subject to a substantial gain or loss.

Liquidity

  • Vanguard Brokerage does not make a market in brokered CDs. If you wish to sell your CD prior to maturity, Vanguard Brokerage may be able to provide access to a secondary market maintained by another broker-dealer. Vanguard Brokerage cannot provide assurance that you will be able to sell your CDs prior to their maturity. In addition, a secondary market for the CDs may be discontinued at any time without notice.

Fees

  • Vanguard Brokerage does not charge a commission for CDs purchased on the primary market, although it may receive a concession from the issuer. Commissions will be charged for transactions on the secondary market.

Risks

  • Lower yields. Yields on CDs tend to be lower than those of other higher-risk investments.
  • Interest rate fluctuation. Like all fixed income securities, CD prices are susceptible to fluctuations in interest rates. If interest rates rise, the price of outstanding CDs will generally decline. However, because changes in interest rates will have the most effect on longer maturities, short-term CDs are less susceptible to interest rate movements.
  • Credit risk. Because CDs are issued by banks, they are subject to credit risk. The insurance offered by the FDIC may help mitigate this risk.
  • Selling before maturity. CDs sold prior to maturity may be subject to a substantial gain or loss due to interest rate changes. In addition, the secondary market may be limited.

All brokered CDs will fluctuate in value between purchase date and maturity date. CDs may be sold on the secondary market, which may be limited, prior to maturity subject to market conditions. Any CD sold prior to maturity may be subject to a substantial gain or loss. Vanguard Brokerage does not make a market in brokered CDs. The original face amount of the purchase is not guaranteed if the position is sold prior to maturity. CDs are subject to availability. As of July 21, 2010, all CDs are federally insured up to $250,000 per depositor per bank. In determining the applicable insurance limits, the FDIC aggregates accounts held at the issuer, including those held through different broker dealers or other intermediaries. For additional details regarding coverage eligibility and insurance limits for other types of accounts, visit www.fdic.gov. Vanguard Brokerage imposes a $10,000 minimum for CDs purchased through Vanguard Brokerage. Yields are calculated as simple interest, not compounded. Brokered CDs do not need to be held to maturity, charge no penalties for redemption, and have limited liquidity in a secondary market. If a CD has a step rate, the interest rate of the CD may be higher or lower than prevailing market rates. Step rate CDs are subject to secondary market risk and often will include a call provision by the issuer that would subject the investor to reinvestment risk. The initial rate of a step rate CD cannot be used to calculate the yield to maturity. If a CD has a call provision, the issuer has sole discretion whether to call the CD. If an issuer calls a CD, there is a risk to the investor that the investor will be forced to reinvest at a less favorable interest rate. VBS makes no judgment as to the creditworthiness of the issuing institution and does not recommend or endorse CDs in any way.

Vanguard Brokerage Services (VBS) has provided availability to the alternative trading systems operated by Tradeweb Markets LLC ("Tradeweb") and to other content provided by Tradeweb. Tradeweb provides access to certain municipal bond information from DPC DATA. Tradeweb and DPC DATA are third parties and are not affiliated with VBS. While VBS provides access to Tradeweb's alternative trading systems, VBS has no control over actions taken by Tradeweb.

All content with the exception of new issue municipal content is provided by Tradeweb and DPC DATA. VBS is not responsible for the accuracy of this data. New issue municipal content on the Tradeweb pages is provided by VBS.Tradeweb Disclaimer

For additional information with respect to CDs, see the Certificate of Deposit Disclosure Statement. Additional information is available at www.fdic.gov.

Note on account protection: Securities in your brokerage account are held in custody by Vanguard Brokerage Services (VBS), a division of Vanguard Marketing Corporation, Member FINRA and SIPC. Account protection information

 

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