CERTIFICATES OF DEPOSIT bought through a brokerage usually offer higher yields and can afford some welcome liquidity, but they come with pitfalls, especially if the issuing bank goes belly up.

and please, please make sure, your total deposits are covered up to $100,000, or $250,000 in the case of some retirement funds.

A brokered CD, as the name implies, is purchased through a brokerage account. That allows you to range farther and wider among banks competing to offer the best rates. The downside? If the bank that sold the CD through your broker goes bust, be prepared to wait before the FDIC comes to your rescue. Because there's a broker standing between you and the bank, there's quite a bit of red tape separating you from restitution.

When an FDIC-insured bank fails, most depositors have access to their funds the next business day. In case of brokered CDs, it's the broker, not you, who has the relationship with the bank. When the FDIC steps in, it needs to comb through all the brokered deposits and all brokers' records to determine how much of the money is insured before it can return it to investors. That can take days or even weeks.

But it can get even worse. Remember that the FDIC insures your total deposits at a single institution up to $100,000. When you purchase a brokered CD, it's possible that the broker bought it from a bank in which you already maintain accounts. The big caveat: When buying a brokered CD make certain you know who the issuer is. With banks failing at an alarming rate, the last thing you want is to have your assets hanging out in the breeze, uninsured. To check out the coverage on all your money sitting in all your institutions, use the FDIC's Electronic Deposit Insurance Estimator.

On the plus side, brokered CDs might offer greater liquidity than those purchased directly. A brokered CD can often be sold on the secondary market, allowing you to pull your cash out without the early withdrawal penalty associated with regular CDs. However, that does expose you to market risk. As with bonds, if interest rates rise the market value of your brokered CD could fall.

Finally, whether you buy your brokered CD from an online broker, financial advisor, planner or consultant, make sure to do some sleuthing. Start by doing homework on your securities dealer or broker using the Financial Industry Regulatory Authority's BrokerCheck.

Like all financial products, brokered CDs are no free lunch. The competitive yields and the potentially enhanced liquidity are nice, but only if you understand the risks.

Also See:
FDIC Protects Most, but Not All, Bank Assets
Questions to Ask a Prospective Financial Planner
Don't Take Bait of Brokerage Phishing Scams