Bank CD Yield

Selling CD’s and taking advantage of loan demand


Banks and other institutions buy CD’s offered by other banks. If you have banks that buys CD’s, and you have a bank that needs money, you can earn from that. Lets say your investing bank is looking for a 3% 5 year CD (don’t be alarmed by the low rates, as of this printing, interest rates are at all time lows), The bank that is looking for money is offering a rate of 3.25%. You can approach the deposit bank with providing them a $100,000 deposit, not to exceed their total cost of 3.25%. You ask them if they pay for deposits, if they do, you tell the bank to issue the CD to your bank at 3%, and then you bill the deposit bank the .25 point spread between their cost and the CD rate you are giving to your customer. A .25 point for a 3 year CD is $750. What if you had 10 banks interested in 3 year CD’s? That’s $7500. Your client banks would wire the money in. Each deposit is fully insured, the bank sends them a receipt, and your done.

You also could do this with banks that are not as loaned out, but are looking to make a spread between their deposit rates, and a higher fixed income investment that you have. Let’s say there is a 4% corporate bond for 3 years that is available, and the deposit bank is paying 3.25% for 3 year deposit CD’s. If you can provide the bank with a CD at a total cost of 3.25%, and then take that money and invest it in a corporate bond, you made a spread for the bank, and you made money on both ends. The deposit spread, and the mark up on the corporate bond trade. These kinds of trades are simple to present and execute. The one objection you will encounter from some is the bank does not accept “Brokered Deposits”. Brokered Deposits are large time deposits that are listed as “brokered”, meaning, it was arranged through a broker. Some banks only consider deposits as brokered if they pay a fee for the deposit. Remember how we explained providing a jumbo CD to a bank and using their gross rate?, we provided the CD to a depositor and charged the bank a .25 point. Now, the bank never paid more for the deposit than if it issues it directly to our investor, we never exceeded their cost, but the bank is paying you a .25 point fee. For some reason, banks may not want to do that.

You can get around the bank paying the fee if your investor pays the fee. If a bank is offering 4% for 1 year, and the going rate on CD’s is 3.50%, you can offer the CD to your investor at 4%, bill THEM (investor) the .25 point and still net them 3.75% overall. Not all institutional investors pay fees, but they should if you are consistently showing them better rates than what they are seeing locally or directly.

Doing CD business is nice and easy, but you won’t make that much money. Bank deposits are only insured up to $100,000 per account, so your investor can only buy one $100,000 CD at any one bank. There are ways to capitalize on this market though if you do or have one of the following:

Have an institutional investor that only buys CD’s and has millions to put out at different banks

Represent a deposit bank exclusively, or at least be one of a few other brokers. You can then offer the rate to other brokerage firms and you get a cut on every deposit

Have a bank investor who also manages trust accounts. This way, your investing bank will call you with different customers of theirs that are looking for CD’s. They will give you the name of the customer and you just give the bank the wiring instructions and details to them. Trust departments may also buy other bonds; Municipals, treasuries, etc.

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