Fidelity Investments — The Value of Fidelity’s CD Offerings

Quality, convenience, broad choices, & FDIC protection

The Certificate of Deposit (“CD”) market has grown rapidly to more than $2 trillion¹. In light of the recent market turbulence, there has been a renewed interest in safer instruments such as FDIC-insured CDs. Fidelity’s brokered new issue CDs offer the following:

Competitive rates: Especially for rates on maturities of 2 years and up
Make FDIC protection go further: You can buy brokered CDs from multiple banks, each up to the FDIC limit, in one Fidelity account
Liquidity: Generally, you can sell a brokered CD before the maturity date (subject to market conditions)²
Convenience: Buy CDs in one account, and benefit from Fidelity's AutoRoll and CD ladder capabilities to help you manage your investments with minimal work
Quality offerings: Fidelity considers certain third-party ratings* and seeks to exclude offerings from banks whose relative financial strength may be below industry average when evaluated at the time of offering using an outside vendor’s analysis. Fidelity also excludes offerings from banks that do not meet a minimum asset level.

Current CD rate environment

Traditionally the rates offered from brokered CDs have been noticeably higher than the CDs offered directly from the major or large regional banks. Banks could offer lower rates due to a broad deposit base and a strong branch network.

Today, we have a reversal of the normal state of affairs. Recently, larger banks have probably seen some deposits leave as customers are concerned about exceeding the FDIC limit at a single institution. In response, banks may try to win more customers over to their own direct-issue bank CDs as it provides them the opportunity to retain the relationship and cross-sell other products.

Despite appealing introductory rates for bank CDs, Fidelity’s brokered CD offering remains highly compelling and competitive. Below is a summary of all the advantages of investing in brokered CDs at Fidelity.

Competitive rates

Historically, Fidelity’s brokered CDs compared favorably with average bank CD rates in the 3-18 month maturities. We anticipate a return to this competitive landscape once the market turbulence subsides. In the meantime, there are a number of positive points that you should consider when evaluating Fidelity’s brokered CD rates with a bank’s CD:

Our CD rates are competitive with other online brokerages – They offer brokered CDs as we do on Fidelity.com.
Our CD rates on the longer end of maturities (from 2 years out) are very competitive. Many banks don’t offer CDs beyond 5 years to maturity. As with any longer term security there may be some level of interest rate risk.
Banks may offer some limited or promotional rates for shorter maturity CDs simply to attract deposits. Unlike bank CD rollover programs, the Fidelity Auto Roll service is focused on delivering the best possible rate3 for the customer each and every time the CD rolls (see Auto Roll below).

In addition, Fidelity’s Capital Markets team continues to find competitive rates from banks around the country.

Make your FDIC protection go further

Many customers want to maximize FDIC coverage, but their coverage is limited to total deposits at each FDIC member bank. Banks do not have the ability to exceed FDIC-insurance limits4. Fidelity, however, offers many CDs from hundreds of different banks, each of which provides for FDIC protection up to current FDIC limits.

Liquidity

If a customer who owns a CD at Fidelity wishes to liquidate their position, they may do so at any time, 5 subject to a $1 per CD (1CD = $1,000 par value) trading fee. Most banks charge a penalty to liquidate one of their CDs.

Convenience

Fidelity’s brokered CD offering provides access to multiple banks’ CDs in one place. Also, because they are securities, there is none of the paperwork required as at a bank. If you are looking to buy CDs at multiple banks for risk and/or FDIC insurance purposes, consider the time required to process all of the paperwork at each separate institution, the additional effort to monitor all the separate maturities, and the process required to withdraw the money and redeploy it at another institution if the roll rate proves less competitive over time.

All CDs offered through Fidelity’s CD Center can be held in one account and be are eligible for full FDIC insurance provided the CDs don’t exceed FDIC limits on any individual issuer6. Fidelity has pioneered two services that can add value to the way customers invest in CDs:

Fidelty’s CD Bond Ladder: Establishing a ladder enables you to continuously roll any maturing CDs into new issue CDs with varying terms to maturity where Fidelity’s rates currently compete favorably to the banks. The result may be that you receive a better aggregate rate through a CD ladder. Furthermore, if you wish to dollar cost average back into the stock market, this strategy would allow you to transition back into the stock market with the proceeds from the maturing positions. (See: www.fidelity.com/bondladder) Only new issue CDs are available for use in creating a CD bond ladder.
Fidelity’s Auto Roll service: Fidelity is the first brokerage company to offer a truly automated service for reinvesting CDs. The Auto Roll service automatically reinvests proceeds from maturing CDs into the highest available yielding new issue CDs of similar duration and coupon frequency available from Fidelity’s CD Center7. For new issue FDIC–insured CDs, the Auto Roll purchase will be based upon a series of requirements. However, it is notable that the issuer of the maturing CD is not one of Fidelity’s requirements.

Quality CD choices by evaluating the offering banks

Fidelity utilizes a proprietary screen to evaluate the financial strength of banks prior to offering their brokered CDs through our platform.. Fidelity filters other “at-risk” banks from its inventory by considering certain third-party research data on the issuing bank. Although the FDIC coverage means that customers who stay within the FDIC limits are covered, should the bank fail there may be a lag in accessing the depositor’s money as well as the inconvenience of establishing new contacts at the acquiring bank. Between January 2008 and April 2009 (source FDIC: Failed Bank List), 48 banks have failed. Screening for higher rated banks can help reduce some of the risk of investing in CDs of banks that ultimately fail. Fidelity screened out 40 of the 48 banks that failed for at least 12 months prior to their failing.

*Only CDs from banks that appear to meet normal industry capital standards as defined by the rating firm’s methodology at the time of the offering are shown. Fidelity is not responsible for the timeliness or accuracy of the rating’s firms data which is subject to change. Investors may obtain certain financial information about issuing banks from the FDIC website. You may also obtain ratings from third-party ratings providers such as IDC Financial Publishing and BankRate, among others. Fidelity encourages customers to consider only purchasing FDIC insured CDs, within applicable FDIC insurance coverage limits, to help mitigate the risk posed by potential failure of an issuing institution.

Source: Securities Industry Financial Markets Association, US Outstanding Money Market Instruments - quarterly data to Q2 2009
Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Your ability to sell a CD on the secondary market is subject to market conditions. If your CD has a step rate, the interest rate of your CD may be higher or lower than prevailing market rates. The initial rate on a step rate CD is not the yield to maturity. If your CD has a call provision, which many step rate CDs do, please be aware the decision to call the CD is at the issuer's sole discretion. Also, if the issuer calls the CD, you may be confronted with a less favorable interest rate at which to reinvest your funds. Fidelity makes no judgment as to the credit worthiness of the issuing institution.
Subject to availability and certain limitations.
CDs issued by FDIC-insured institutions and held in Fidelity accounts are generally insured up to the following limits: Up to $250,000 per account owner per institution. Certain FDIC insurance coverage limits for non-retirement accounts have been temporarily increased from $100,000 to $250,000. These temporary increases will remain in effect until December 31, 2013. Additional information can be found on the FDIC website. CDs held in non-retirement accounts which mature after 12/31/2013 will be eligible for up to $250,000 in coverage up to the 12/31/2013 date. After that the insurance will revert to the $100,000 level.
The secondary market may be limited. If your CD has a maturity date of more than one year from the Date of issue, the pre-maturity sale price may be less than its original purchase price, particularly if interest rates are higher at the time of sale. There may be certain features or provisions of the CD may also influence its market price. If you want to buy or sell a CD, Fidelity Brokerage Services LLC (“FBS”) may charge you a fee. This concession will be applied to your order, and you will be provided the opportunity to review it prior to submission for execution. CDs are made available through our affiliate National Financial Services LLC (“NFS”) and from various third-party providers, including participants on the BondDesk platform, with FBS normally acting as riskless principal or agent. These offering brokers, including NFS, may separately mark up or mark down the price of the security and may realize a trading profit or loss on the transaction.
FDIC coverage limits apply to aggregate amounts on deposit at each covered institution. Investors should consider the extent to which other accounts, deposits or accrued interest may exceed applicable FDIC limits. Fidelity will not monitor the amount of your brokered deposit to determine whether it exceeds the limit of available FDIC insurance. You are responsible for monitoring the total amount of your assets on deposit with the issuer (including amounts in other accounts at the issuer held in the same right and legal capacity) in order to determine the extent of deposit insurance coverage available to you on those deposits, including your brokered deposit. If you are a trustee, you are responsible for determining the application of the insurance rules for you and your beneficiaries.
Subject to availability and certain limitations. Fidelity makes certain CDs available without a separate transaction fee. Fidelity may receive compensation for new issue brokered CDs from an underwriter in the form of a concession. It is typically between .5 and 2%.

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	The Value of Fidelity’s Brokered New Issue CD Offerings Quality, convenience, broad choices, & FDIC protection The Certificate of Deposit (“CD”) market has grown rapidly to more than $2 trillion¹. In light of the recent market turbulence, there has been a renewed interest in safer instruments such as FDIC-insured CDs. Fidelity’s brokered new issue CDs offer the following: Competitive rates: Especially for rates on maturities of 2 years and up Make FDIC protection go further: You can buy brokered CDs from multiple banks, each up to the FDIC limit, in one Fidelity account Liquidity: Generally, you can sell a brokered CD before the maturity date (subject to market conditions)² Convenience: Buy CDs in one account, and benefit from Fidelity's AutoRoll and CD ladder capabilities to help you manage your investments with minimal work Quality offerings: Fidelity considers certain third-party ratings* and seeks to exclude offerings from banks whose relative financial strength may be below industry average when evaluated at the time of offering using an outside vendor’s analysis. Fidelity also excludes offerings from banks that do not meet a minimum asset level. Current CD rate environment Traditionally the rates offered from brokered CDs have been noticeably higher than the CDs offered directly from the major or large regional banks. Banks could offer lower rates due to a broad deposit base and a strong branch network. Today, we have a reversal of the normal state of affairs. Recently, larger banks have probably seen some deposits leave as customers are concerned about exceeding the FDIC limit at a single institution. In response, banks may try to win more customers over to their own direct-issue bank CDs as it provides them the opportunity to retain the relationship and cross-sell other products. Despite appealing introductory rates for bank CDs, Fidelity’s brokered CD offering remains highly compelling and competitive. Below is a summary of all the advantages of investing in brokered CDs at Fidelity. Competitive rates Historically, Fidelity’s brokered CDs compared favorably with average bank CD rates in the 3-18 month maturities. We anticipate a return to this competitive landscape once the market turbulence subsides. In the meantime, there are a number of positive points that you should consider when evaluating Fidelity’s brokered CD rates with a bank’s CD: Our CD rates are competitive with other online brokerages – They offer brokered CDs as we do on Fidelity.com. Our CD rates on the longer end of maturities (from 2 years out) are very competitive. Many banks don’t offer CDs beyond 5 years to maturity. As with any longer term security there may be some level of interest rate risk. Banks may offer some limited or promotional rates for shorter maturity CDs simply to attract deposits. Unlike bank CD rollover programs, the Fidelity Auto Roll service is focused on delivering the best possible rate3 for the customer each and every time the CD rolls (see Auto Roll below). In addition, Fidelity’s Capital Markets team continues to find competitive rates from banks around the country. Make your FDIC protection go further Many customers want to maximize FDIC coverage, but their coverage is limited to total deposits at each FDIC member bank. Banks do not have the ability to exceed FDIC-insurance limits4. Fidelity, however, offers many CDs from hundreds of different banks, each of which provides for FDIC protection up to current FDIC limits. Liquidity If a customer who owns a CD at Fidelity wishes to liquidate their position, they may do so at any time, 5 subject to a $1 per CD (1CD = $1,000 par value) trading fee. Most banks charge a penalty to liquidate one of their CDs. Convenience Fidelity’s brokered CD offering provides access to multiple banks’ CDs in one place. Also, because they are securities, there is none of the paperwork required as at a bank. If you are looking to buy CDs at multiple banks for risk and/or FDIC insurance purposes, consider the time required to process all of the paperwork at each separate institution, the additional effort to monitor all the separate maturities, and the process required to withdraw the money and redeploy it at another institution if the roll rate proves less competitive over time. All CDs offered through Fidelity’s CD Center can be held in one account and be are eligible for full FDIC insurance provided the CDs don’t exceed FDIC limits on any individual issuer6. Fidelity has pioneered two services that can add value to the way customers invest in CDs: Fidelty’s CD Bond Ladder: Establishing a ladder enables you to continuously roll any maturing CDs into new issue CDs with varying terms to maturity where Fidelity’s rates currently compete favorably to the banks. The result may be that you receive a better aggregate rate through a CD ladder. Furthermore, if you wish to dollar cost average back into the stock market, this strategy would allow you to transition back into the stock market with the proceeds from the maturing positions. (See: www.fidelity.com/bondladder) Only new issue CDs are available for use in creating a CD bond ladder. Fidelity’s Auto Roll service: Fidelity is the first brokerage company to offer a truly automated service for reinvesting CDs. The Auto Roll service automatically reinvests proceeds from maturing CDs into the highest available yielding new issue CDs of similar duration and coupon frequency available from Fidelity’s CD Center7. For new issue FDIC–insured CDs, the Auto Roll purchase will be based upon a series of requirements. However, it is notable that the issuer of the maturing CD is not one of Fidelity’s requirements. Quality CD choices by evaluating the offering banks Fidelity utilizes a proprietary screen to evaluate the financial strength of banks prior to offering their brokered CDs through our platform.. Fidelity filters other “at-risk” banks from its inventory by considering certain third-party research data on the issuing bank. Although the FDIC coverage means that customers who stay within the FDIC limits are covered, should the bank fail there may be a lag in accessing the depositor’s money as well as the inconvenience of establishing new contacts at the acquiring bank. Between January 2008 and April 2009 (source FDIC: Failed Bank List), 48 banks have failed. Screening for higher rated banks can help reduce some of the risk of investing in CDs of banks that ultimately fail. Fidelity screened out 40 of the 48 banks that failed for at least 12 months prior to their failing. *Only CDs from banks that appear to meet normal industry capital standards as defined by the rating firm’s methodology at the time of the offering are shown. Fidelity is not responsible for the timeliness or accuracy of the rating’s firms data which is subject to change. Investors may obtain certain financial information about issuing banks from the FDIC website. You may also obtain ratings from third-party ratings providers such as IDC Financial Publishing and BankRate, among others. Fidelity encourages customers to consider only purchasing FDIC insured CDs, within applicable FDIC insurance coverage limits, to help mitigate the risk posed by potential failure of an issuing institution. Source: Securities Industry Financial Markets Association, US Outstanding Money Market Instruments - quarterly data to Q2 2009 Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Your ability to sell a CD on the secondary market is subject to market conditions. If your CD has a step rate, the interest rate of your CD may be higher or lower than prevailing market rates. The initial rate on a step rate CD is not the yield to maturity. If your CD has a call provision, which many step rate CDs do, please be aware the decision to call the CD is at the issuer's sole discretion. Also, if the issuer calls the CD, you may be confronted with a less favorable interest rate at which to reinvest your funds. Fidelity makes no judgment as to the credit worthiness of the issuing institution. Subject to availability and certain limitations. CDs issued by FDIC-insured institutions and held in Fidelity accounts are generally insured up to the following limits: Up to $250,000 per account owner per institution. Certain FDIC insurance coverage limits for non-retirement accounts have been temporarily increased from $100,000 to $250,000. These temporary increases will remain in effect until December 31, 2013. Additional information can be found on the FDIC website. CDs held in non-retirement accounts which mature after 12/31/2013 will be eligible for up to $250,000 in coverage up to the 12/31/2013 date. After that the insurance will revert to the $100,000 level. The secondary market may be limited. If your CD has a maturity date of more than one year from the Date of issue, the pre-maturity sale price may be less than its original purchase price, particularly if interest rates are higher at the time of sale. There may be certain features or provisions of the CD may also influence its market price. If you want to buy or sell a CD, Fidelity Brokerage Services LLC (“FBS”) may charge you a fee. This concession will be applied to your order, and you will be provided the opportunity to review it prior to submission for execution. CDs are made available through our affiliate National Financial Services LLC (“NFS”) and from various third-party providers, including participants on the BondDesk platform, with FBS normally acting as riskless principal or agent. These offering brokers, including NFS, may separately mark up or mark down the price of the security and may realize a trading profit or loss on the transaction. FDIC coverage limits apply to aggregate amounts on deposit at each covered institution. Investors should consider the extent to which other accounts, deposits or accrued interest may exceed applicable FDIC limits. Fidelity will not monitor the amount of your brokered deposit to determine whether it exceeds the limit of available FDIC insurance. You are responsible for monitoring the total amount of your assets on deposit with the issuer (including amounts in other accounts at the issuer held in the same right and legal capacity) in order to determine the extent of deposit insurance coverage available to you on those deposits, including your brokered deposit. If you are a trustee, you are responsible for determining the application of the insurance rules for you and your beneficiaries. Subject to availability and certain limitations. Fidelity makes certain CDs available without a separate transaction fee. Fidelity may receive compensation for new issue brokered CDs from an underwriter in the form of a concession. It is typically between .5 and 2%.	Not a Customer? Open an Account View Sample Bond Offerings Call 800-FIDELITY to speak to a representative CD Disclosure Document (PDF)

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The Value of Fidelity’s Brokered New Issue CD Offerings