What is the problem with CDs?

I am not familiar with any issues with Bank CDs, unless the Bank actually fails, and the FDIC has to step in to transfer those bank assets to another bank. Aside from that, Bank CDs act much like any other Bank account--the original investment amount stays unchanged, you receive CD interest payments on a schedule you select, and af the end of CD investment period you get your investment back with options for what you want to do with it. If you need to terminate that CD early, there is an early withdrawal penalty of several months of interest. As far as I know, there have not been any "problems" with bank CDs discussed on any other forums, and I certainly have not had any problems with my bank CDs.

Brokerage CDs are a bit different than Bank CDs. With brokerage CDs there is an agreement by the brokerage, with selected banks, to list CDs with pre-established list of CD details. As an investor, you go through a "list" of new CD offers by various banks for various time periods, you review the interest rate offfers for the various CDs for various time periods and the schedule of interest rate distributions for that specific CD, and then you select one of those new listings/offers that meet your requirements. You choose how much of your available cash you want to spend on a CD, buy it, and then start experiencing the reality of that Brokerage CD. The first thing I experienced was that the cash value of the CD immediately started fluctuating. I recall buying some brokerage CDs, for a 2 year period, for $250,000, and a day later, the cash value of those CDs reported at the brokerage was over a $1000 less for each of those CDs. At that point, I learned that a Brokerage CD value will have daily fluctuations in value, much like a bond oef, and if you wish to sell it then you have to find a buyer on a "secondary market" in order to get rid of it--that can be a very costly and cumbersome transacton for early termination of a brokerage CD, and much more of a more complicated process of early termination than just dealing directly with a bank. However, if you just ignore those daily fluctuations of CD share prices and investment value, wait until the end of the CD period, you will get your original investment returned to you. The other issue that you need to be prepared for is the schedule of interest payments you agree to in purchasing a brokerage CD--many available brokerage CDs will only pay you the accrued interest when the CD matures, some will pay it semi-annually, and some on a monthly schedule, and the investor has to just accept that schedule offered by the bank on the brokerage platform. The investor "assumes" that they will get their interest payments on those "settlement dates" described in the CD certificate, and for the most part that usually occurs. However, occasionally you may have an interest rate payment that does not settle on that "settlement date"--I have purchased about 25 different CDs over the last 2 years, and I had 2 different banks that did not pay the scheduled interest on time, and after being overdue in their payments by a week or more, I had to ask my brokerage for help in determining why the interest payment was late. It was at that point that I discovered that I could not directly contact the Bank to get the resolution, and the bank had no identifying information about me. That is when I discovered that the Brokerage was the only entity that had my identifying information. I learned that the bank was working with an entity called the Depository Trust Corporation with the interest rate payments--the bank sends the interest rate funds to the DTC, who goes through a process of accumulating those assets, and then at the settlement date, the DTC sends the money to the brokerage, and then the brokerage deposits that money into my brokerage account to me. The "problem" I had with that process is that some hiccups occurred between the bank and the DTC in the process, and my brokerage was the only entity to find out what was causing the problem and work with the bank and DTC to correct it. Once the brokerage gets involved, the issue was resolved in my 2 CDs very quickly, and I ultimately received the interest payments about 2 weeks late. For me, the 2 overdue interest rate payments were more of an irritation, inconvenience, than a serious problem, and it has not prevented me from continuing to buy new brokerage CDs after my existing ones matured and returned my original investment amount.

If I am going to compare Brokerage CDs to bond oefs, the risk of losing my original investment can be much greater with a bond oef. I can remember an incident in 2020, when I was encouraged by a bond oef trader to invest about $250,000 in some bond oefs by a bond oef expert, but within a week that was deemed a bad trade decision, and I lost about $5000 on that bond oef trade, had to cut my losses and then figure out how to recoup my $5000 loss in portfolio principal. To me that was a "problem" and at that point I determined I was not a good trader, and it was much more risky to trade bond oefs than to buy brokerage CDs. It is up to each investor to weigh the risks and rewards and determine how much to put their principal at risk with each investment decision.