Are Certificates of Deposit (CDs) FDIC Insured?

Passive income the old-school way. CDs are back in style. And with some CD rates at 5%, it’s easy to see why.

As you know, a certificate of deposit (CD) is a type of savings account that allows you to deposit your money for a set term. The term is usually from one month to several years.

In exchange for holding your fund for the entire term, you are guaranteed a rate of return.

CDs are often considered a low-risk investment option, as they offer a fixed rate of return and the security of FDIC insurance.

But are CDs FDIC insured? The answer is yes, but with some important caveats.

Let’s dig into the basics of FDIC insurance and how it applies to CDs (traditional, joint, and brokered).

What is FDIC Insurance?

Here’s the boring explainer. But it needs to be done. The Federal Deposit Insurance Corporation (FDIC) is an independent U.S. government agency. It provides deposit insurance to protect depositors in case of a bank failure.

FDIC insurance covers deposits up to $250,000 per depositor, per insured bank, for each account ownership category.

How Does FDIC Insurance Apply to CDs?

Investing in a CD is a great way to get a secure return on your money, and when you use an FDIC-insured bank it’s protected the same as any other deposit account.

To have FDIC insurance, your CD must be issued by an approved bank – not all banks offer this service.

Research the specific bank you’re considering to make sure it’s insured by going to the FDIC website or getting confirmation from the bank itself.

When investing through a foreign bank, proceed with caution as CDs issued by them may not qualify for FDIC coverage.

Ask yourself why you’re using such an institution – is there something they offer that makes up for this lack of protection?

Are Joint CDs FDIC Insured?

Joint CDs, owned by more than one person, may also be eligible for FDIC insurance, but the coverage limit may be lower. The FDIC insures deposits up to $250,000 per depositor, per insured bank, for each account ownership category.

In the case of joint CDs, the coverage limit may be shared among the joint owners.

For example, if two people own a joint CD with a balance of $500,000, each person would be insured for up to $250,000 in case of a bank failure. #lifegoals

It’s also good to know that the surviving owner will be insured for the entire $500,000 balance if one person dies.

Are Brokered CDs FDIC Insured?

Brokered CDs, purchased through a stock broker rather than directly from the issuing bank, may also be eligible for FDIC insurance.

However, the FDIC coverage for brokered CDs may differ from those purchased directly from the issuing bank.

When you purchase a brokered CD, the FDIC insurance applies to the deposit with the issuing bank, not the broker. This means that if the broker fails, your deposit is not insured.

No worries, though. If the issuing bank fails, your deposit is insured up to $250,000 per depositor, per insured bank, for each account ownership category.

Related: Roth IRA CD: Tax-Advantaged Retirement Investing without the Risk

More Questions About the Risk of CDs

Do you still have questions? Have no fear. We’ve got you covered with these additional answers related to CDs, FDIC-Insurance, and the risk and reward of this unique investment vehicle.

What CDs are not FDIC-insured?

CDs that are not FDIC-insured are going to be issued by banks that are not members of the Federal Deposit Insurance Corporation. Not many banks meet this criteria. Also, as I said above, Brokered CDs may not be insured.

What is the FDIC insurance limit on CDs?

The FDIC insurance limit on CDs is $250,000 per depositor, per insured bank, for each account ownership category.

This is a standard setting across all financial institutions. So you can rest assured that if the bank says they are FDIC Insured, you are getting this amount of coverage.

Are CDs the safest investment?

CDs are considered a low-risk investment, but they are not the safest investment option. Other options, such as government bonds, may be considered safer. This is probably splitting hairs. CDs are about as safe as you can get.

What to do if you have more than 250k in the bank?

If you have more than $250,000 in the bank, you may want to consider spreading your funds across multiple banks or into other types of investments. This will help to ensure that your money is fully insured. Don’t put all your eggs into one basket!

Related: How to Build a CD Ladder: A Smarter Way to Save

What is the biggest negative of putting your money in a CD?

It used to be that the biggest negative of putting your money in a CD is the low-interest rate compared to other types of investments. But CD rates are really high right now.

I’d say the biggest negative on CDs is locking your money up for an extended period of time. Of course, there are no-penalty CDs you could look into if you want to hedge.

Can you lose money in a CD account?

No, you cannot lose money in a CD account as long as the bank is a member of the FDIC and you have deposits below the insurance limit. As I said above, CDs are about as safe as you can get.

What is the disadvantage of a CD account?

The disadvantage of a CD account is the historically low-interest rate (rates are currently pretty high) and limited accessibility to your funds before the CD matures.

Is it worth putting money in a CD right now?

Whether it’s worth putting money in a CD right now depends on your personal financial situation and goals.

In general, a younger person who doesn’t need their funds for a long time would likely want to consider alternative investments that offer higher returns but with more risk.

For example, a taxable investment account invested in index funds.

Additionally, high-yield savings accounts can have interest rates similar to CDs. And they don’t have any of the term requirements.

What happens to CD if the bank fails?

If a bank fails, FDIC insurance will cover your deposits up to the limit. You will then receive your money, including interest earned, within a few days.

Conclusion

In conclusion, CDs are generally FDIC-insured as long as they meet specific eligibility requirements.

It’s essential to check with the bank before you open a CD to ensure that it is FDIC insured and to understand the coverage limit. If you have concerns about the bank, use the FDIC search tools to locate the bank in their system.

Lastly, if you’re considering a joint CD or a brokered CD, you have to understand how FDIC insurance applies to these types of accounts. It’s nuanced. Have a question? Leave it below.