What Are Brokered Deposits?

Most bank deposits arrive through relationships — a customer opens a checking account, a business parks its operating funds, a retiree rolls over a CD. But a significant and growing portion of US bank deposits arrive through a different channel entirely: third-party brokers who aggregate funds from investors and place them at banks offering the most competitive rates. These are brokered deposits — and they are one of the most closely watched, most regulated, and most misunderstood funding sources in banking.

What a Brokered Deposit Is

A brokered deposit is any deposit placed at a bank by or through a deposit broker — a third party who acts as an intermediary between depositors and banks, typically aggregating funds from multiple investors and placing them where rates are most attractive.

The FDIC's formal definition under 12 CFR Part 337 is broad: a brokered deposit is any deposit obtained through a deposit broker, defined as any person engaged in the business of placing or facilitating the placement of deposits with insured depository institutions. This encompasses a wide range of intermediaries — from large national brokerage firms to online deposit marketplaces to specialized deposit placement agents.

How Brokered Deposits Enter the Bank

Brokered deposits reach banks through several distinct channels, each with its own mechanics and depositor base:

Deposit listing services

Online platforms — Raisin, SaveBetter, Bankrate's CD marketplace — list competitive CD and savings rates from banks across the country. Retail investors browse rates, select a bank, and open an account through the platform. The bank receives a deposit it never directly marketed for. The platform is the broker.

This channel has grown substantially as digital banking has made it trivially easy for consumers to chase the highest rate regardless of which institution offers it.

Brokerage sweep programs

Large brokerages — Fidelity, Schwab, Merrill Lynch — automatically sweep idle client cash into FDIC-insured bank deposits, typically at affiliated or partner banks. Billions of dollars flow through these programs. The client earns interest; the brokerage earns a fee; the bank receives funding it did not have to market directly.

Sweep deposits became a flashpoint in 2023 when rising rates caused clients to pull cash out of low-yielding sweep programs and into money market funds — creating unexpected deposit outflows at banks dependent on sweep funding.

Reciprocal deposit networks

Programs like IntraFi (formerly CDARS and ICS) allow banks to exchange deposits with each other, enabling large depositors to receive FDIC coverage beyond the $250,000 per-institution limit. A business with $2.5 million to deposit places it at one bank; the network distributes it across ten member banks in $250,000 chunks, each fully insured.

Reciprocal deposits occupy a regulatory gray zone. The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 carved out a partial exemption: well-capitalized banks that are not in troubled condition may exclude a portion of reciprocal deposits from the brokered deposit classification, subject to caps.

Traditional deposit brokers

Specialized firms place large institutional and high-net-worth deposits at banks, typically in jumbo CD amounts. These brokers shop rates aggressively and move funds on maturity to wherever rates are most competitive. They represent the purest form of rate-driven, relationship-free deposit funding.

Why Banks Use Brokered Deposits

If brokered deposits carry higher risk and regulatory restrictions, why do banks use them? Because they solve real problems:

Rapid balance sheet growth

Building a retail deposit franchise takes years — branches, marketing, staff, brand. A bank that needs to grow its deposit base quickly to fund loan growth can access brokered deposits at scale within weeks. For community banks and de novo institutions without established retail networks, this is often the only practical path to competitive funding volumes.

Geographic flexibility

Retail deposits are geographically constrained — a bank with branches only in Ohio can only attract retail depositors in Ohio. Brokered deposits are national. A bank can access funding from depositors across the country without a single additional branch.

Rate certainty

Brokered CDs have defined maturities and fixed rates. A bank can precisely match the cost and duration of its brokered funding to the assets it is financing — useful for asset-liability management in environments where rate volatility is a concern.

FDIC-insured investor demand

There is genuine investor demand for FDIC-insured, rate-competitive deposit products — particularly from risk-averse investors, corporate treasuries, and retirees. Brokered deposit channels efficiently connect banks willing to pay for funding with investors seeking safety and yield. Both sides of the market benefit.

The Hot Money Problem

The fundamental risk of brokered deposits is their rate sensitivity. Retail depositors often stay with a bank out of inertia, convenience, or relationship loyalty — even when competitors offer better rates. Brokered depositors have no such loyalty. When a CD matures, the broker will move the funds to a competing institution if it offers a better rate. The bank must continuously compete on price to retain its brokered funding.

This dynamic creates a structural vulnerability. A bank heavily reliant on brokered funding must continuously offer competitive rates — which compresses net interest margin. In a stress scenario, if the bank's financial condition deteriorates and it can no longer offer competitive rates, brokered deposits mature and leave. The very moment the bank most needs stable funding, its most rate-sensitive funding disappears.

Silicon Valley Bank — A Modern Lesson

Silicon Valley Bank's collapse in March 2023 was not primarily caused by brokered deposits — but it illustrated in extreme form what deposit instability looks like at scale. SVB's deposits were concentrated among a homogeneous base of venture-backed technology companies with strong social network connections. When concerns about SVB's financial position spread on social media and in group chats, depositors coordinated their withdrawals with a speed and scale that no bank's liquidity management had been designed to handle.

$42 billion in deposits left SVB in a single day. The bank was seized the following morning.

The SVB episode accelerated regulatory focus on deposit stability across the industry — not just brokered deposits, but uninsured deposits, concentrated depositor bases, and the speed at which digital banking enables bank runs that would previously have taken weeks to develop.

Regulatory Restrictions on Brokered Deposits

Federal law restricts brokered deposit activity based on a bank's capital adequacy. The restrictions are significant and escalate as capital deteriorates:

The rate cap provision is particularly consequential. Adequately and undercapitalized banks are restricted in the rates they can offer on all deposits — not just brokered ones. This prevents troubled banks from offering above-market rates to attract funding and gamble for recovery at depositors' and the FDIC's expense.

FDIC Insurance Premiums

The FDIC's risk-based deposit insurance premium system treats brokered deposits as a risk indicator. Banks with higher brokered deposit ratios pay higher premiums — reflecting the FDIC's assessment that brokered funding represents elevated liquidity risk and increases the probability and cost of bank failure.

This premium differential creates a direct financial incentive to favor retail deposit gathering over brokered funding. The catch is that building a retail deposit franchise — branches, marketing, digital banking infrastructure, relationship management — is expensive and takes years. Many banks accept the higher premium as the cost of accessing brokered funding while their retail franchise matures.

Key Metrics for Monitoring Brokered Deposit Risk

The Bottom Line

Brokered deposits are a legitimate and widely used bank funding tool — but they come with structural risks that regulators treat seriously and bank management teams must actively manage. They are rate-driven, relationship-free, and mobile: they flow to whoever pays the most and leave the moment a better rate appears elsewhere. Banks that use brokered funding need robust liquidity management, diversified funding sources, and a clear-eyed view of what happens to their balance sheet if brokered deposits reprice or non-renew at scale. Understanding what brokered deposits are, how they enter the bank, what restrictions apply, and why they are considered hot money is foundational knowledge for anyone working in bank treasury, risk management, or regulatory compliance.