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A deposit broker is a person or firm that places deposits with banks on behalf of third-party investors, connecting depositors who want the best available interest rates with banks that want to attract retail funding. The broker earns a fee for the placement, paid by the bank. Brokered deposits are a well-established funding source for financial institutions, and the Federal Deposit Insurance Corporation regulates how banks can use them based on the institution's capital status.
Think of a deposit broker like a travel agent for cash: they shop multiple banks to find the best available rate for your deposit, then route your money to the winner.
A deposit broker aggregates funds from many individual investors and places those funds in bulk with one or more banks. Each individual depositor still benefits from FDIC insurance up to $250,000 per depositor per institution, even though the broker placed the funds as a package. Banks pay a premium rate to attract these deposits because brokered deposits can be deployed immediately into earning assets.
The broker maintains records identifying the underlying individual depositors, which is what allows the FDIC insurance to pass through to each person rather than applying only to the broker as a single entity.
Not all banks can accept brokered deposits freely. The FDIC imposes restrictions based on capital adequacy.
The FDIC updated its brokered deposit rules in December 2020 in a significant regulatory shift. The 2020 rule created a new framework for determining which deposits qualify as "brokered" and established exceptions for deposits placed by entities that are not primarily in the business of placing funds with third parties. The update reduced the number of deposits classified as brokered for many fintech-bank partnerships, which had structured their deposit products in ways the older rules captured inappropriately.
A bank that needs to grow its balance sheet quickly, fund a loan pipeline, or replace a maturing wholesale funding source can use a deposit broker to attract retail funds from outside its local market. This supplements branch-based deposits without requiring geographic expansion. It is particularly valuable for smaller banks competing with larger national institutions for deposit funding.
The cost of brokered deposits is usually higher than core deposit rates because investors have choices and demand competitive yields. Banks accept this cost because the alternative, not having the funds at all, is more expensive when lending opportunities are available.
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