What Is Brokered Deposits?
Deposits placed at a bank by or through a third-party broker, often to obtain the highest available interest rate.
How It Works
Brokered deposits are funds placed at a bank by deposit brokers — intermediaries who aggregate deposits from individuals and institutions and distribute them across multiple banks to maximize FDIC insurance coverage and interest rates. Common deposit brokers include brokerage firms (Fidelity, Schwab, Vanguard) that offer customers access to bank CDs through their platforms.
From a depositor's perspective, brokered CDs can be attractive: they offer competitive rates, and the broker handles splitting deposits across multiple banks to stay within FDIC limits. This service, called deposit placement or deposit sweeping, allows you to get FDIC coverage on balances well above $250,000 by spreading them across many banks.
From a bank safety perspective, however, heavy reliance on brokered deposits is a warning sign. Brokered deposits are considered "hot money" — they flow to whichever bank offers the highest rate and can leave quickly when rates change or concerns arise. Banks that depend heavily on brokered deposits for funding face greater liquidity risk than banks funded primarily by stable, relationship-based core deposits.
Regulators restrict undercapitalized banks from accepting new brokered deposits under the Prompt Corrective Action framework. A bank that suddenly begins offering unusually high CD rates through brokerage platforms may be desperate for funding — a pattern that preceded several bank failures. If you hold brokered CDs, verify that each bank where your deposits are placed is FDIC-insured and check its Health Score on BankHealthData. The broker should provide a list of all banks holding your deposits and confirm your FDIC coverage.
Related Terms
FDIC Insurance
Federal guarantee that protects bank deposits up to $250,000 per depositor, per bank, per ownership category if a bank fails.
Uninsured Deposits
Bank deposits that exceed the $250,000 FDIC insurance limit and are not guaranteed if the bank fails.
Savings Account vs. CD
Two common deposit products: savings accounts offer flexible access with variable rates, while CDs lock funds for a fixed term at a fixed rate.
Prompt Corrective Action
The regulatory framework that requires banking agencies to take increasingly severe enforcement actions as a bank's capital falls below specified thresholds.