Key takeaways
- Consider a CD if you want an account that offers a higher APY and you can let the money sit in the account for months or years.
- Are CDs FDIC insured? Many CDs are covered by FDIC insurance, but financial institutions may also offer uninsured options.
- CDs pay a fixed interest rate over the life of the investment.
Got cash to save? Certificates of deposit (CDs) allow you to stash a set amount of funds for a certain time. A low-risk alternative to traditional savings accounts,CD accounts generally pay higher interest rates in exchange for time-based restrictions on accessing your money ranging from one month to several years. You can expect higher interest rates for longer durations, and you generally only face charges and fees on a CD if you need to withdraw your money before the term is up.
Are CDs FDIC insured?
Yes, most CD accounts are insured by the Federal Deposit Insurance Corporation (FDIC), an independent agency that provides deposit insurance and maintains the safety of the U.S. banking system. Deposits at FDIC-insured banks are covered up to $250,000 per person per account ownership type.
For example, a $250,000 certificate of deposit in a single-owner account would be fully insured in the event of a bank failure or liquidation. For joint accounts with two owners, coverage of up to $500,000 would kick in if a bank fails.
Similar to the FDIC, the National Credit Union Administration (NCUA) insures CD deposits for credit union customers up to $250,000 per credit union per account owner.
What types of CDs aren't FDIC-insured?
While many CD accounts come with automatic FDIC coverage, there are exceptions. Some types of CDs don't carry deposit insurance even when held at an FDIC member bank. Uninsured CDs may include:
Foreign CDs
With these CD accounts, you invest money in foreign banks. In addition to the lack of FDIC insurance, you assume the risk of exchange rates moving up or down during the CD term.
Brokered CDs
You can purchase CD accounts through a nonbank institution such as a brokerage firm, though they may not carry FDIC insurance. Ask your broker or investment advisor if coverage is available.
Yankee CDs
Foreign banks residing in the US may offer Yankee CD accounts, available in US dollar denominations but without FDIC insurance.
Uninsured CD accounts may offer higher interest rates to compensate you for the lack of coverage and increased risk. Evaluate your risk tolerance and the issuing bank's stability when considering an uninsured CD account.
What happens if my bank fails?
In the rare occurrence of a bank failure, the FDIC steps in to guarantee the insured amount in existing deposit accounts. The FDIC will first search for another bank willing to assume the insured accounts. When it isn't possible to sell or transfer the deposits, the FDIC reimburses account holders according to insurance limits, which amount to a $250,000 balance per member bank per depositor in each account ownership category.
Are CDs safe investment options?
Yes, CD accounts are a low-risk option with an acceptable balance between return and risk. If you're looking to save a set amount of cash and aren't willing to stomach the rollercoaster ride of an investment with fluctuating values, CD accounts are a solid choice. Understanding how a CD works can help you determine if this option will meet your needs. While CD accounts might yield a lower return than the stock market, they offer higher interest rates than traditional savings accounts or checking accounts with little to no added risk.
Can you lose money on a CD?
Yes, it's possible to lose some money on a CD, but you can take steps to limit your exposure. If you don't want to forfeit any of your savings, confirm your CD account is FDIC insured and understand when you might be taking on added risk. Here are a few scenarios which could result in a loss:
- Purchasing an uninsured CD
- Withdrawing funds before the maturity date, resulting in a penalty
- Investing more than the FDIC insurance coverage limit in one CD
CDs: A low-risk, high-performing option
If you want the peace of mind of FDIC insurance combined with higher earnings than a traditional bank account, check out today's certificate of deposit rates and terms. If your financial institution offers both insured and uninsured CD accounts, understand all the terms and conditions when comparing interest rates between these options.
Curious about investing in a CD? Find out more about our CD rates and terms.
