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RICHARD CARTER:Hello, and welcome, everyone, to our fixed-income webinar for today. My name is Richard Carter. I'm the vice president for our brokerage offering of bonds and CDs on our Fidelity.com platform, many of you may be familiar with. And I'm delighted today to be joined by two colleagues of mine from Fidelity's capital markets division, Patrick Deignan and Max Ostrowski. Maybe I will turn it to you, gentlemen, first of all, just to have a quick intro of your own situation and your work in Fidelity's ecosystem. Patrick, how about you first?
PATRICK DEIGNAN:Sure. Thank you, Richard. Good afternoon, all. As Richard had mentioned, my name is Pat Deignan, and I am a senior vice president within the Fidelity capital markets division. My responsibilities are heading up our taxable fixed income trading and syndicate businesses within the capital markets business.
RICHARD CARTER:Thanks, Pat. And over to you, Max.
MAX OSTROWSKI:Yes. Good afternoon, everybody. My name is Max Ostrowski. And, alongside my colleagues, Jason Colangelo and Eamonn Hunter, make up the CD and CUSC underwriting desk here in New York City. Our job is to bring both credit union share certificates and brokered CDs to the Fidelity platform to make available for purchase.
RICHARD CARTER:Thank you, Max. Excellent. OK, well, let's dive right in. Today, we're going to look at this interesting couple of products that are very instrumental for investing in the shorter time frames. We'll start off with a bit of a backdrop review-- very interesting times in fixed income right now in general. And then we'll dive into these two products in turn-- firstly, the brokered CDs followed by the brokered credit union share certificates, aka, CUSCs. And then we'll look at some of the practical aspects of how to buy and sell them.
So, first of all, when we look at the environment we're in, I thought it might be interesting to start with a quick snapshot in the fact that it was only a year ago, just over, that we made a similar presentation. And we showed at that point, in August 2025, this little screenshot from our model CD ladder display. And you can see at the time the little, what we call our yield curve, if you like, of short-term CDs, was as displayed on the left.
And then yet today, when you look at it, we have quite a different picture. So, in one year, we've seen the yield curve go from an inverted state to what we're more familiar with-- a normal looking yield curve. But it has led to quite a lot of differences. As you can see there, the six-month yield has actually declined slightly, yet longer out, 18 months and two years, you can see that we're now yielding into the high 4's. Even this slide itself is a week or so old – a couple of weeks old.
So, with that in mind, people might be curious, why are we looking at this change? And what type of forces are in the wider macro environment that also impact the CD market here? Pat, maybe I could turn that to you, first of all, to help us navigate that.
PATRICK DEIGNAN: Sure. Thank you, Richard. As Richard had mentioned just before, a lot has changed over the last 12 months. So, before we dive into CD and credit union share certificates, we thought it would be helpful to just take a quick look at the interest rate market environment-- where we've been just a year ago, where we are now, and where we appear to be heading into the tail end of 2026 and into 2027 and beyond.
So, before we get too deep into it, let's first start out by defining what the fed funds rate is before we dive deeper into the path of these rates. The federal funds rate is the rate that banks pay for overnight borrowing in the fed funds market. It's used around the world as a benchmark for other lending rates such as wholesale borrowing, mortgages, consumer credit, and small business loans, just to name a few.
Now, when rates drop, households are more inclined to spend, which boosts business profitability, promotes hiring, thus lowering the unemployment rate. This is really the tool the Federal Reserve uses to address its dual mandate of containing inflation, while trying to maximize employment in the US economy as a whole. So, what has changed?
Well, as many of you are aware, during the latter half of 2025, the FOMC had resumed its rate easing cycle, lowering Fed funds rates by 75 basis points from 4.25% to 4.5% range to 3.5% to 3.75% range, as there were some signs of a slowdown in the economy. The FOMC had determined at that time that the balance of risks in the economy were shifting from tariff induced inflation pressures toward a modestly softening employment story.
In the view of the FOMC, they had seen emerging signs of labor market deterioration. Job gains had slowed. The unemployment rate had begun to edge a bit higher. So even though the inflation continued to be a lingering issue and was still above its desired target, there was a modest shift in the dual mandate risk assessment between inflation and employment optimization.
The FOMC's message was, essentially, acknowledging inflation was continuing to run above the 2% target, but the risk of keeping policy too restrictive and causing unnecessary labor market weakening had become greater than the risk of a modest easing. Now, fast forward a few months, as we moved into the start of this year, there has been an emergence, obviously, of significant geopolitical considerations with the ongoing war in Iran.
Now, initially, markets and the administration, presidential administration, viewed the war in Iran as, really, a short-term conflict. And the potential of renewed inflationary pressures from oil supply constraints was viewed as providing limited upward pressure on energy. However, as the war in Iran has continued to drag on, these pressures continue to remain.
Inflation has proven stickier than expected. Energy prices are creating renewed upside inflation risks, and the labor market, really, has held up much better than the markets were expecting a year ago. So where does that all leave the markets at this point? As we touched on a moment ago, and we can see it on the chart here on the right, we have quickly shifted from an easing bias, where the yield curve had inverted, as Richard had talked about, from the front end to the five-year part of the interest rate curve, with the expectation of rate cuts from the FOMC, to a much, much, much more hawkish position.
At this point last week, the FOMC obviously pivoted to a tightening policy with a 25-basis-point rate hike at last week's FOMC meeting, bringing us up to a 4% to 3.75% range. And this has led to higher yields across the curve, with the curve normalizing and steepening from two years, all the way out to 30 years.
Now as we look forward, several additional rate hikes have also been priced into the market. As you can see, this has shifted the rates markets from, again, an inverted yield curve to a much steeper yield curve over the past several weeks. OK, so now that we've set the interest rate backdrop, we thought it would be helpful to provide some context on how the CD and credit union share certificate rates compared to treasury rates.
So, flipping over to the next slide here, we see several charts that are comparing various tenors for yields for both treasuries and brokered CDs. And you'll notice on the top half of the page, we have some shorter-term yields in the three-month and six-month part of the curve. You can see, over the past eight to nine months, at times, there have been some noticeable yield spread differential between brokered CDs and treasuries.
Notice, you see the dark green line, which represents CDs, running above the light green curve, which represents treasury yields for much of the time going back to the start of this year. Similarly, as you shift to the lower half of the page, we see one year and two-year yield comparisons. We once again see there is some notable yield enhancement in brokered CDs versus treasuries for much of this year.
I'd also note on the one-year and two-year comparisons, we've also overlaid callable CD rates, which are represented by the dotted green line. Notice there is even further yield pickup in the callable space. Now, keep in mind, with callable CDs, investors typically need to be compensated for the call optionality, hence the even wider spread differential. Keep in mind, with callable structures, the bank issuer has the option to call the CD at their discretion on a predetermined call schedule.
This allows the issuer to lock in longer term liabilities, while having the flexibility to redeem the CD early if market rates move lower in the future. It can provide the issue with the option to refinance at lower rates. OK, so now that we've compared recent rates between brokered CDs and treasuries, we thought we could provide some context on what may be driving what banks are paying for deposits in the marketplace.
Max, you're engaging with these banks in this space on a daily basis. Perhaps you can maybe just talk a little bit about some of the trends that you're seeing in the banking sector today.
MAX OSTROWSKI: Yes, thanks Pat, and eager to spend a few minutes today talking about trends in banking and what the health and growth of the banking sector means for brokerage CD issuance as we round out the year and head into 2027. The top left chart indicating total assets versus gross loans and leases, this chart is calling out the general health of the entire US banking system.
You'll see that the solid bar chart pertaining to the left-hand axis is calling out total assets in the banking industry. Now, as you can see, that's been a steady uptrend going back as far as Q1 of 2025 and landing at just short of $26.5 trillion as of Q2 of 2026. This $26.4 trillion does represent an all-time high, indicating the general health and growth of the banking industry.
You'll notice the trend line running through the bar chart pertaining to the right-hand axis represents gross loans and leases. Gross loans and leases are a measure used to summarize total bank loans. And you can see that trend has also been increasing going back to Q1 of 2025. Total bank loans have increased roughly 9% from Q1 2025 up until Q2 of 2026-- so, certainly meaningful growth indicating the health and solid functioning of the US banking system.
Now, what does this mean for brokered CD issuance? Why does this matter, this top left chart? Well, banks need to fund this loan growth on the asset side of the balance sheet via their funding toolkit. And part of that funding toolkit are brokered CDs. So, by understanding the health of the banking sector and following along with these trends, we can generally get a good pulse on what brokered CD issuance is going to look like for the remainder of the year and heading into 2027.
And this chart is speaking to the fact that we should see healthy issuance to round out the year and another strong year next year after what was a strong year this past year. Moving to the right-hand chart, new issue CD issuance-- we know that's a bit of a mouthful there, but the chart is very important outlining, specifically, the action in the brokerage CD space going back to Jan of '25. You'll see the bar chart again, pertaining to the left-hand axis, is calling out new issue dollar amounts-- so how much brokerage CD new issuance hit during each month.
You'll see that the trend line running through the bar chart pertaining to the right-hand axis is calling out new issue count, or the amount of new CD CUSIPs that were generated in a given month or unique deals. Now, the trend we want to call out here is that the trend line can drop, i.e. the new issue count can drop, but you'll see that the bar chart has remained fairly consistent, especially in 2026. And you'll even notice between June and July of 2026, that new issue count dropped. But you'll see that the bar chart, the total amount of issuance, has remained consistent, which indicates that, although there might be less unique deals in the space, there's still plenty of product to go around.
Moving to the bottom left, the number of FDIC insured banks, this chart speaks for itself. This is the amount of FDIC chartered banks available in the system at any given time. And you'll see the trend running down since 2007. You'll see the number of institutions have dropped, and that's mainly through M&A and consolidation activity and not due to bank failures, which is a good story.
I believe the number in 2024 and 2025 saw two bank failures in each year. And this year, there's five year-to-date. So, thankfully, big failures are not contributing meaningfully to this trend. And the banking sector is, indeed, very healthy, as we talked about in that first chart.
Something that we're looking forward to and a trend we're watching very closely on the desk here on the underwriting side are new bank charters on the bottom right there. You'll see that in 2024, new bank charter applications were close to zero. And that was due to strict regulatory burdens and red tape that the OCC and FTC had in place to, more or less, discourage businesses from applying for bank charters.
And the OCC and FDIC have since made a strong push in 2025 and 2026 to lower that boundary and to create opportunities for businesses to apply for bank charters. So, what does this mean for brokered CD insurance going forward? We're very hopeful that some of these new bank charters, or de novo charters, will start to surface in 2027 and utilize the brokered CD space to raise money.
Some of these banks include larger household names that you all probably know-- Ford Credit Bank, GM Financial, and PayPal Bank are some of the three that have applied and been approved to receive charters from the OCC and the FDIC. So, we might be able to buck the trend on that FDIC insured banks trend to, perhaps, plateau, or even begin on the uptick to increase that going forward into 2027 and into 2028.
And just a quick synopsis on why would a business apply for a bank charter? A bank charter allows a business to self-fund. And that involves being able to source deposits from brokered CDs, from direct core deposits, et cetera, and fund themselves more consistently and cheaper than not having a bank charter and having to utilize external sources to raise money away from the business. So, these new bank charters are banks trying to raise money in a cheaper way, more efficiently, to make more loans. And we believe brokered CDs is going to play a huge role in that as we go into 2027.
RICHARD CARTER: Well, thank you, Max. And also thank you, Pat. This was very interesting background. I think we could almost do a whole webinar on these dynamics-- really vibrant market you're showing here, Max, with the both decline in the bank's number, but also then the new banks generating the grass roots here.
But let's move on into the main topic and talk about brokered CDs. You've both mentioned this term in passing, if you like. But maybe could I ask you to explain a bit more. Someone might be familiar with the term CDs, certificate of deposit, but then why do we put the word "brokered" in front of it? What does that mean? Could you perhaps explain that for us, Max?
MAX OSTROWSKI: Absolutely, Richard. Thanks. And it's important to step back and understand what exactly we're talking about. So, what is a brokered CD at its core? A brokered CD is a deposit in a bank that looks like a bond. Brokered CDs are purchasable in $1,000 increments, but they're also available to be purchased in $100 fractional increments as part of Fidelity's pioneering program to lower the barrier to entry for investors to be able to utilize the space without having to invest that initial $1,000 that's normally applicable to brokered CDs.
Every CD we bring to the platform, which is very important to understand, are FDIC insured, no matter the name. So, we're going to hammer this home throughout the presentation, but every single CD available to you on Fidelity.com is FDIC insured up to the $250,000 per issuer, per holder limit. The competitive market providing investor choices, the final bullet point regarding the structure of CDs and what we're trying to do here on the desk, this is something that the team here focuses on and strives to do daily throughout the year is to provide as many unique names, coupon options, and tenors as possible to provide Fidelity customers with options. So, our goal day to day, our jobs are to go out, reach out to banks, touch base with them, find new business to provide more product availability to the Fidelity platform.
And the final point that's very important to understand, and certainly a positive draw to a brokerage CD, they are housed in a single brokerage or IRA account. So, you can see everything in front of you. You have everything organized in front of you. You can see your holdings. And, most importantly, consider FDIC coverage limits as you make choices on investment decisions.
RICHARD CARTER: That's great, Max. Thank you. So, what should investors be on the lookout for if they're making their first $1,000 investment?
MAX OSTROWSKI: Yes. So, first and foremost, again, all brokered CDs brought to the platform are FDIC insured. So brokered CD tenors that we're bringing to the platform generally range between the one-month to 20-year tenors, with most CD issuance carrying maturities between one month and five years. We do often have product in the six to 10-year range, and, intermittently, have some 15 to 20-year prints as well.
CDs carries what we call survivor options. A survivor option occurs when a CD holder passes away, and that CD is eligible to be put back to the bank at par if the estate chooses to do so. Under these circumstances, this is the one unique case where a non-callable CD can be redeemed early with the bank. CDs may carry state restrictions or blue-sky restrictions. These blue-sky restrictions can be both state-mandated or directed by the bank in order to restrict the CD offering in a certain targeted geographical area.
Just to let you know, if you're located in a state and that state is blue sky restricted-- so if you're in Ohio and a specific issuance is restricted in Ohio, just know that you can see the print. We want you to be able to see everything and explore your options. But when you go to make a purchase of that CD, the system won't allow you to do so.
And, finally, the CD disclosure document-- it's a 12-page document that provides for a nice light reading. But if you don't have that kind of time, we encourage you to read through the document, reference what you need. The headings are very clearly outlined in regards to what each topic is discussing throughout the document. So, if you question around CDs, the inherent nature of the product itself-- feel free to dig through that document. It's published on Fidelity.com and available all the time for reference.
RICHARD CARTER: Thank you, Max. Just to add, on this slide, you see at the top of the page, number one here, that's the new issue CD offerings table. We're just highlighting one CD here for space reasons. But you can see that there's a lot of information in these columns that you can glean some of the points that Max mentioned.
And then if you click on the name, the bank name of the CD, the first column or the second column, you'll come to number two, which is the bond details page or the CD details page, in this case. And you can see a lot more information that Max was telling you about. As Max was saying, all the CDs are FDIC insured, et cetera. But there's other things like the coupon frequency and things that might be of particular interest that might help you decide between one CD and another.
So, in addition to that specific information, we do have general information to help people as you go on. For example, on the left here, you see some screenshot that illustrates how we have in-app education. So, for example, when you're looking at the list of CDs, there's some helpful text there, a pop-up for understanding the table itself-- what do the column headers mean. And, on some of the terms inside the table, you'll see the letters will be highlighted with dots underneath.
That means you can click on those. This example-- the initials "CP," meaning core protected. That is, as Pat was saying, earlier some of these CDs are callable, meaning the bank can redeem them early at their will along a schedule. But core protected means this CD will live on until its maturity date. And then over on the right, we have general education. We have a product page on the CDs showing some of the features and benefits. And, occasionally, we have our viewpoint series, lower right there-- several viewpoints, actually, that talk about CDs.
So, with that, let's move to our next topic, our next product-- brokered CUSCs. So, Max, could I turn it back to you then to describe what is a credit union share certificate, firstly, and what about are brokered credit union share certificates.
MAX OSTROWSKI: Yes, yes. Absolutely. Newer product on Fidelity.com that we're excited about that's becoming more seasoned by the day. But what is a brokered CUSC? So brokered CUSCs carry many similar traits to a brokered CD but with a very few important differences. Regardless, we want you to know that brokered CDs and CUSCs represent safe, insurable investment vehicles for buyers.
So, one of the main points that we're calling out-- brokered kiosks CUSCs are insured by the NCUA. That's the National Credit Union Administration. The NCUA, in the simplest form, is a sister administration to the FDIC. So, the coverage is the same-- $250,000 limits per issuer, just covered under a different type of insurance umbrella, but also covered by insurance up to the $250k limit.
One of the more important points to highlight, we don't need to run through all of them, but one of the most important points to highlight on this slide is that CUSCs pay dividends and not coupons. Now, technically, this is correct, but CUSC dividends are, essentially, coupon payments.
The rate is fixed, and payouts do not fluctuate like they would on, say, a specific equity holding that pays a dividend. So going forward, and if you're exploring CUSC offerings, if you see dividend, you can, in theory, think "coupon." Those payouts are fixed. They're not going to fluctuate. It's just more or less a different terminology that we use under the CUSC umbrella.
RICHARD CARTER: Thanks, Max. Well, how about, again, the same type of idea-- you're showing on the screenshot quite a few of these now available-- how would I navigate to select one?
MAX OSTROWSKI: Yeah. Absolutely. So, what we want to call out on this slide as well is a few key differences, again, between the brokered CDs-- a lot of similarities, again, with the NCUA insurance coverage. But one of the important things to call out is that tenor availability. The brokered CUSCs only extend out to five years. This is on purpose. And, normally, the shortest tenure that we can provide on the platform is a six-month tenor.
However, due to the continued growth of the product and our emphasis on growing this offering stack, we're focusing on bringing shorter durations like three-month tenors to buyers in 2027 and to increase the offering availability across the entire CUSC space. And we'd also point you, again, to the CUSC disclosure document-- same length and, more or less, a lot of similarities between the CD disclosure document, but with some very important differences. And, again, the headers are clearly defined. So, we love the document. And we think it's very easy to navigate and to find the topics that you have questions around in that document.
RICHARD CARTER: Thanks, Max. And, like before, we'd just show the screenshots on this page. Number one is the offering table-- looks very similar to the CD one. I'll point out at this stage. We'll come into it, actually, later in the presentation. But the fact that what we're talking about here is a new issue market-- new issue CDs, by far the more popular, although there is a secondary market for CDs, and new issue credit union share certificates.
And you'll see their column headers like settlement date, et cetera. So, we'll cover that later. But this is where you get all that information, just like the CDs. And then on number two, lower right, is the screenshot of the CUSC details page, so some of the things that Max was mentioning there, particularly the coupon rate, and the frequency of the coupon payment, et cetera. Although, sorry, I should say, Max, the dividend payment. Shame on me. But thank you for that.
And then, just like CDs, we also have general education. So, in experience education popping up around the terms like NCUA, et cetera, that might be unique to these products. And over on the right, I'm highlighting here the disclosure document. As Max was saying, it's 12 pages. It might seem a bit daunting, but, actually, it's broken up into segments. And it's quite interesting to read some of those details that may be an unfamiliar product to people.
And then, lower right, a screenshot from our CUSC education page on the website. That is a little bit more lighter reading but also covers most of these same topics in terms of the coverage and details about the credit unions themselves. So, with that in mind, let's transition a bit more to hear from you, Max, with your relationships with these banks and these credit unions, to understand a little bit more about what type of institution is interested in engaging in the brokered market, as opposed to only offering CDs and CUSCs to their own customers and members.
MAX OSTROWSKI: Yeah. So, issuers around the country rely on both brokered CDs and brokered CUSCs in order to fund the asset side of the balance sheet. So, like we talked about earlier in the banking slide, banks need to lend money to make money. And they need to borrow that money at a cheaper rate. And that, essentially, comes out to net interest margin.
So brokered CDs provide these banks with a funding option on the asset side of the balance sheet in order for them to go out and make these loans and to retain profitability. So brokered CDs and CUSCs provide many valuable pieces to the bank balance sheet. Sticky deposits is one that we love to call out.
During 2023, when there was a bit of banking volatility around SVB, Signature, and First Republic, brokered CDs remain sticky and static on the balance sheet when people were withdrawing a lot of money en massse especially from SVB, in a very short period of time. So, the stickiness is a huge draw and importance to bank. And brokered CDs, obviously, could not be withdrawn early, remained on the balance sheet, and that was a huge draw for banks during that time of volatility where they could point to regulators and say, we have deposits here that are sticky on the balance sheet. So that's something that they really love and really utilize in the space in order to fund that loan side of the balance sheet.
But the pie chart on the right, we think, calls out a very interesting mix of issuers. What are these issuers using the money for? Issuers can be using the money for a myriad of different things based on their business lines. We have Ally Bank there. That focuses mainly on auto loans. We have Capital One-- very strong household name, credit card balances. We have SoFi that focuses on personal loans. And we have Sallie Mae that emphasizes student loans.
And then on the credit union side, we have Wings and Truliant on there. Both credit unions focus inherently on mortgage lending as well as auto loans. But each have unique lending sectors that they might be using the cash to fund that side. So, Wings, for instance, has an aerospace division that they lend on, and Truliant focuses on heavy machinery lending in the lower Southeast.
So, it could be a vastly different stack of things. Obviously, Goldman Sachs is on there, doesn't need any introduction. But Goldman's heavy in institutional corporate lending. So, we're talking some of the biggest banks in the country ranging from JP Morgan down to, perhaps, a $100 or $200 million credit union. All of these banks have a need to fund in the space in order to fund that loan growth.
The low overhead and marketing costs-- sorry, Richard-- just the final point that we find important. Why is Fidelity in the middle of this transaction? What does it mean for them? Well, we allow these banks and credit unions to go out and access Fidelity customers across the country, right? They don't need to go and buy a billboard or TV ad to see if they can attract deposits. We're kind of doing the work for them. And you, as the customers, are providing a huge draw for banks in order to reach a very large footprint across the country.
RICHARD CARTER:Terrific. Thank you, Max. Yeah. Now, it's interesting that all that diversity you're showing in the pie chart, and yet they're all engaging with us through us to our customers with this new issue process. And I was wondering if you could just spend a minute or two just walking through this process that goes on-- how do we even bring these offerings to the website? What has to happen? They don't just appear magically, right?
MAX OSTROWSKI: Yeah, absolutely. Welcome to the day-to-day of the underwriting desk here. And a new slide this year, which I think is great to outline, how does the conversation begin? How does a bank need translate into you, all the customers, buying a CD or a CUSC? Well, it could be summarized into an eight-step process that's outlined here.
So, the first step involves a conversation. It involves a banker or credit union approaching Fidelity capital markets with a funding need. And we'll go through discussions and work through the motions of asking a bank what size do they need, what settlement date, what tenors to match a certain liability. And once we zero in on a specific deal, we send a terms agreement to the bank, which then gives us the green light to post the deal on the Fidelity platform.
And we've streamlined the process well. We have a fantastic operations team. As soon as we get those terms agreements, we can usually have the product up in front of you within 5 to 10 minutes. So, it's a very quick process that we're replicating throughout the day that we've done a great job with in building out and making quick.
Step five, we're going to open this up and expand on this point shortly in the presentation, but the offering order collection period and the deal management process runs roughly one to three weeks, where the deal is out on Fidelity.com, and you, the customers, have the opportunity to buy the CD or the CUSC. Once this offering period begins to wrap up and we get closer to settlement date, we then gather the final orders. We aggregate all of the orders that you all have submitted on the Fidelity platform, and then we send closing documents to the bank referencing how much we've raised for the credit union or for the bank.
And then finally, step eight, one of the most important, is on settlement date, the cash will leave your account for either the CD or the CUSC. And you'll be credited with the position. So, you buy $10,000 worth of a CUSC, on settlement date, the $10,000 in cash will leave your account. And you'll be credited back with the position itself.
And just to come through and focus back on step one. We touched upon it simply, but it's a big part of our day. Through relationship building and execution for these issuers, Fidelity has built a reliable issuance pipeline that we strive to grow every day. This process could be replicated dozens of times a day, indicating our continued focus on being a reliable partner for issuers, which will allow us to get our hands on more products. So, on the busier days, we might be going through this eight-step process a dozen, two dozen times in order to transact with banks and in order to bring as much product as possible to the Fidelity platform.
RICHARD CARTER: Thanks, Max. It really is pretty impressive given how many offerings we see on our web pages at any given time, that each one has involved this type of step process that you go through. So, thank you for that, and very, very interesting.
Let's now step back and summarize all the different things we've been hearing from that you shared with us, Max. And we thought this might be helpful as a way of comparing and contrasting. We compare here bank CDs with the brokered CDs and the brokered CUSCs. And, as Max was saying, the insurance is the same, even though the agency, NCUA, for those CUSCs is different than the FDIC. But the whole structure of 250,500 for a joint account, et cetera, persists across the three of them.
The second point here, we wanted to point out the potential for interest, or delay, or loss. You can see it's not an issue with CDs, but it is an issue for the CUSCs. And, Max, maybe you could just elucidate a little bit on this topic for the benefit of everybody.
MAX OSTROWSKI: Absolutely. Thanks for bringing it up, Richard-- arguably the most important point on this chart, the CUSCs having that sole check mark. So CUSCs, and we want to be very clear about this, do carry unique risks that both bank CDs and brokered CDs do not. In the case of a CUSC, an issuer drops below a certain net worth threshold. That issuer may be directed by the NCUA to withhold dividend payments to CUSC holders until the credit union recovers.
In the case of a credit union failure, to take it one step further, the NCUA will make a determination on making CUSC holders whole on dividends owed up to the fail date. So, to summarize this, CUSCs carrying extra layer of risk to brokered CDs and bank CDs and could withhold dividend or coupon payments to end buyers if they breach a certain health threshold. Now, it's important to note, and something we're very proud of here in the desk, is that since the CUSCs program's inception in July of 2025 last year, no CUSC holder has been denied full dividend payments and gotten the principal back by an issuer or the NCUA.
So, this scenario has never happened to a CUSC buyer through the Fidelity platform in the time since we brought this to the network. And this can be attributed to the many thresholds a credit union issuer must meet to be offered to Fidelity customers, which can include asset size, credit quality, net worth guidelines, among many other things. So, while we are focused on bringing as much product as possible to the platform, we do have to turn away offerings, at times, that don't meet these requirements.
RICHARD CARTER: Thank you, Max. That was very helpful. OK, so just going through the rest of them briefly, I think one of the important ones is this idea of compounding interest. And if you think about a bank CD, it really is an account. And, oftentimes, the account is accruing that interest daily. And it compounds as life goes on.
In the case of brokered instruments, it's more like a bond where the interest is paid out. And it's obviously going into your core account at Fidelity. Maybe it's a money market account that itself owns a good rate of interest. But it's outside of the instrument at that point. Callable options, we mentioned that earlier on, that those are a thing to look out for as you make your choices. As Max was saying earlier, one of the benefits of the brokered CDs and the brokered CUSCs is that you can purchase them inside a single brokerage account or IRA.
And then the secondary market. Now, there is not that term really necessary in the bank CD. If you have a bank CD and you wish to exit early, you basically are closing the account. There may be a penalty. And in the case of the brokered market, it's more of a transaction where one is selling the CD or CUSC just like a bond. We do have other facilities available in our brokered market too, such as the auto roll option.
Here, we have a capability for CDs, at least, that, on the maturity of the CD that you purchased, you can elect for it to be automatically reinvested in the best yielding CD of the same tenor. And banks offer that same facility. We don't yet have that in the credit union share certificates.
And, as Max was saying, finally, all these issuers are competing. Of course, even the bank CDs where maybe a customer of a certain bank, it's all too easy today to go online and browse other offerings. And we're very much aware of that. But we hope that, certainly, if you look at our web pages today, you'll see these banks competing in the brokered market and the credit unions also beginning to compete.
And, talking of that, let's just take a look at that type of competition in practice. Max, if you'd like to comment on what you see here going on, but this was just a snapshot of time taking on September the 14th.
MAX OSTROWSKI: Yes. So, as of September 14, we can see both brokered CDs and CUSCs compared next to each other on the slide. And the yellow highlights are indicating which product has a better yield, which is more attractive. And you'll see brokered CDs are winning in ways, have the high structures in, I think, 5 out of the 8 or 9 tranches. But we do see CUSCs are beating out brokered CDs in the one-year and 18-month tenors by 5 to 10 basis points.
So, there can be spread pickup between the two products, so we encourage you to compare them side by side and to look at both products. I think today, in this very moment, there might be some CUSC pickup stories further out in the curve as well. So very important to look at both, to move between the two, and to assess your options as you're looking at coupon and dividend availability.
RICHARD CARTER: Thanks, Max. I know we had to change this slide several times during the preparation of this presentation because the rates were moving-- so very interesting dynamic at work right now. Well, thank you. As we wrap up our presentation, the formal presentation, let's just look at some of the things to look out for when you're considering buying and selling brokered CDs and CUSCs.
Max gave us that wonderful timeline earlier of the behind the scenes, what goes on for Max and his team as they negotiate with banks and credit unions to bring the offerings to market. And what we're trying to show here is that, as a new issue market, there is this offering period. It's similar to an IPO. There's an offering period, and then we collect the orders, as Max was saying.
Then, at that point, the offering is taken down from the website, and the communication returns to the bank or the credit union about how many we'd like to buy. And, then once we receive the product from the bank or the credit union, we then, in turn, distribute it back out to the customer. And so you can see in the screenshot here, we've shown a little picture, a little diagram, of almost a continuation of Max's slide, which is to say, after the order period has closed, how long would you estimate the order period will be open for? And then what day would the trade happen? And what day is the settlement?
So, you can work out, specific to the order you've placed from the current moment, when is that settlement date? And I do appreciate that that might throw people sometimes, that they make the purchase online, but it's not in the account immediately. That is because it's a new issue. And this whole process is taking its time to play out.
But the settlement date is important, because that will form a key structure, just like the maturity date, for when the purchase is consummated, the money is taken from the account and begins to earn interest under the CD. We also have an option I referred to a second ago about reinvesting the maturing proceeds of a CD. And here, we have the term "auto roll" service.
And as you can see from this screenshot, as you place the order for the first CD, you'll be offered the opportunity to either say yes to auto roll or no to auto roll. And if you say no, the monies will be returned to your account as, say, a maturing bond would. But if you say yes, the coupons do get paid to your core account. But at the end of the life of the CD, the maturing principal will be reinvested automatically until you wish it to stop. But they'll be reinvested automatically into the best paying CD of the same maturity date as your current CD.
We also offer model CD ladders. And this product is something that I know, Pat, we collaborated a number of years ago to offer this very helpful product. Maybe you could just explain a little bit of the science theory behind what we see in front of us here.
PATRICK DEIGNAN: Yeah, sure. Thanks, Richard. I'm glad we focused on this, because it's been a very popular product for many of our investors and clients. So, as you see here on Fidelity.com, this is a feature that we have three different types of model CD ladders.
We have a short-term ladder. That's a one-year ladder that features a 3, 6, 9, and 12-month maturity. Then we have a medium-term ladder, which is a two-year ladder that contains six-month, one-year, 18-month, and two-year maturity runs. And then, lastly, a longer-term ladder, which is a five-year ladder that contains 1, 2, 3, 4, and 5-year maturity rungs.
Now, when leveraging these packaged ladders, the website will always preview the highest rates available on Fidelity.com. But, again, as Richard had alluded to earlier, one of the features which is really neat, I believe, is the auto roll functionality for these ladders. This is where, as Richard had laid out, the client executes the ladder and can elect to have the maturity proceeds roll all the way out to the furthest leg of the ladder, to the longest maturity bucket in said ladder, as part of that.
And what's great about that, it just makes it easy for clients to, effectively set it, and forget it, and streamline the process for reinvestment of maturing proceeds as they roll down. This is a particularly attractive strategy, I would say, in a rising rate environment, as you can begin to take advantage as shorter maturities roll down and they roll them out. And if you're in an increasing rate environment and it kind of extends, you get to take advantage of that higher yield, longer out on a steeper curve, as we talked about earlier. That's kind of where the marketplace is today.
RICHARD CARTER: Thank you, Pat. That's absolutely right. That's great. And as you're speaking, I'm thinking, perhaps, we haven't mentioned enough that a lot of our customers, the majority of our customers, buy a CD or a CUSC for a buy and hold type of strategy. It's really more cost effective to let the instrument mature. There are choices of maturities.
So, think about what maturity you're really interested in and try to avoid selling because if you do sell, there will be a transaction fee, whereas there's no fee to buy a new issue CD or CUSC. But, Max, we certainly don't want to prevent people from selling if they have to sell early. So maybe you could just help us quickly understand what facilities exist to help people if they do want to liquidate ahead of time, both with a credit-union share certificate and a CD.
MAX OSTROWSKI: Yes. So, we understand that there can be unforeseen changes in somebody's investment or cash needs. So, if you do, indeed, need to sell out of a CD before the maturity date, you could certainly do so on Fidelity.com. On the CD side, that process is very well seasoned and established, where you can click the CUSIP you'd like to sell, the size, and then click an indication of offer, and your request will go out to many different dealers throughout the network through the electronic trading platforms, et cetera.
And it'll spit back the highest price that you can get for that position. The credit union side is a little different. And behind the scenes, it's a little more hands on from the team here in New York, where, if we get a credit union CUSC bid request, we do it by hand where we're going out to a myriad of different dealers on the street who bid CUSC paper. And we'll go ahead and get best price.
So, we get pricing depth there. It is less depth than you get in the brokerage CD space. That's just the nature of the product and the environment itself. But you can certainly get bids on both. The CD secondary bids may be more aggressive based on the market, but you are going to get market prevailing rates. But know that there are efforts, on the brokered and CUSC side, to ensure that we are getting pricing depth for you and coming back with the best price possible.
RICHARD CARTER: Thank you, Max. Yes. And then this concept and this connection with the dealer network is the same infrastructure we use for bond selling as well. So, it's certainly, maybe, a new thing for people who own CDs. But it's certainly a very well-trodden path we have. Every day, it's helping people access liquidity in both bonds, and CDs, and now credit union share certificates too.
So that was excellent. Thank you both. And I think as we round up here, let's just maybe say a few words before we turn it over to the audience for questions. Pat, how would you maybe leave us a thought on the markets as we, again, have had a very interesting last couple of months-- as you said, with the FOMC and now we almost are seeing rates increasing by the day. Any final thoughts from you?
PATRICK DEIGNAN: Yeah. So, I'd just make a couple, or maybe a few, points, Richard, as we look ahead here. Obviously, there's a lot going on in the marketplace, right? There continues to be meaningful uncertainty and volatility in the rates markets. Like we talked about before, obviously, we've seen the FOMC initiate tightening cycle with their quarter point hike last week.
And markets really are beginning to price an increasing number of hikes as we enter into next year. Keep in mind, just a couple of points I'd make on the CD market-- keep in mind, brokered CD rates typically follow the move in the treasury market, but they don't always react as quickly. So, it's something that, as an investor, you should keep your eye on, because the broader market tends to just paint a picture as to the direction that brokered CD rates are going.
So sometimes as an investor, you may just want to keep your eye on those CD rates to make sure, because sometimes it does take a little bit of a lag to catch up with those sudden moves in the treasury market. Next, we talked about everybody's aware of the upcoming midterm elections and they're approaching. And it's certainly an important dynamic in the marketplace.
But the one thing I'd highlight for the brokered CD market, really, is more of, I would say, call it, a signaling event. It shouldn't really influence near-term bank policies. So, we're thinking just, Max and I thinking as we go into next year, really, the banking sector should be pretty much status quo as far as healthy balance sheets and funding needs as we head into next year.
Mergers, and acquisitions, and consolidation in the banking sector, I think it's going to continue to be a theme. One thing I just mentioned to note, if you do hold separately insured institutions and something happens and they merge, or one of the institutions is acquired, you are, in fact, grandfathered into the FDIC insurance separation if it was purchased prior to that merger.
However, anything purchased after that fact needs to be added to your aggregate position in that banking institution. And then, lastly, I just mentioned, obviously, Max had touched on, with the arrival of new banks, we think there's going to be an opportunity looking forward here to add product offerings. And I think one dynamic we probably will see is an increased competition for deposits, which we're hopeful that may push rates higher as we move forward into next year for CDs and credit union share certificates.
RICHARD CARTER: Thank you. Thank you, Pat, very much. And, lastly, in terms of getting started, wanted to show here a little screenshot or two about where on the website you can find these offerings. You can see here under the main tab structure at the top the main menu, under news and research, fixed income bonds and CDs will take you right there.
And then, when you go to our landing page, search for bonds, you'll see the link there for new issues. And once you do that, you can select from a variety of our new issue offerings. But you'll see CDs and CUSCs as part of that. Select that, check those, and select them, and click Search. And you'll see the results either for one or both.
So, thank you very much, everybody. We appreciate you listening. We do have time just to squeeze in one or two questions. Let me throw this one to you, Max. It's been quite popular. And I think we should try and answer it, because it's almost like repeating some of the things we've tried to explain here.
But, firstly, on the fees for new issue CDs, the question is, are there higher fees for longer maturities, et cetera? Maybe just reiterate the opportunity for investors with new issue CDs and CUSCs.
MAX OSTROWSKI: Yes, absolutely. So, as Pat pointed out, we are in a steepening curve environment. So, you are going to get duration compensation as you extend out on the curve. So, if by fees you mean what coupons or rates you're going to get, there's absolutely pickup as you extend out on the curve.
RICHARD CARTER: Sorry. I beg your pardon. Sorry to interrupt you, but I did mean charges for the customer-- charge.
MAX OSTROWSKI: Oh, yeah. Absolutely. Yeah. No charges for new issue transactions. And, as Richard mentioned, those secondary transactions are going to carry a charge for execution.
RICHARD CARTER: Great. Thank you. And then another question on the FDIC insurance coverage-- somebody asking about the fact that if I have two CDs in my brokerage account, is my coverage is only $250,000?
MAX OSTROWSKI: So, if it's two separate FDIC charters, then you have up to $500,000. So, if it's two unique bank names, you have up to $500,000 at $250,000 per issuer. So, you can own two separate names. As long as the FDIC charters are different, you can extend that FDIC coverage. And that can go, almost in perpetuity, higher.
So, I think last year, we brought 469, 470 issuer unique issuers to the platform. And, to put that in perspective, that will provide about $117 million in FDIC insurance. So, understand that that's a big number. But if somebody at the start of last year came in and said, I $117 million to invest, and I want to be fully insured across bank names, we would have been able to cover that in insurance.
So, we lean on product availability to provide the options. And, to answer the question, yes, you'd be up to $500,000. If it's the same name, then you're only up to the $250. But as long as those FDIC certs defer, you're good for the amount of bank names that you have.
RICHARD CARTER: Thank you, Max. And I would just add, as Pat was taking us through the auto roll, that is part of the program logic-- that it does check if your brokerage account that you're buying this in has the same bank already, it will account for that and look elsewhere for the next best rate. So, we are very conscious of, while maximizing that opportunity, also being careful not to exceed it.
Well, gentlemen, thank you very much. Pat and Max, it's been great talking with you today. I hope audience have enjoyed it too. Sorry we didn't have time to get to all the questions today but thank you very much for all the work you do. And, again, we appreciate it bringing these great offerings to our customers. Thank you, everybody.