Are Certificates of Deposit (CDs) FDIC-Insured?

Certificates of Deposit (CDs) are savings accounts where a fixed sum of money is held for a set period, offering a predetermined interest rate. They are considered a low-risk savings option. Deposit insurance helps foster confidence in the financial system by safeguarding funds held in banks.

Understanding Certificates of Deposit

A Certificate of Deposit (CD) is a time deposit account offered by financial institutions. It features a fixed interest rate and a specific maturity date, ranging from a few months to several years. Investors typically receive higher interest rates compared to standard savings accounts. However, withdrawing money before the maturity date usually incurs a penalty, affecting the overall return.

Understanding FDIC Deposit Insurance

The Federal Deposit Insurance Corporation (FDIC) is an independent U.S. government agency established to maintain stability and public confidence in the nation’s financial system. Its core mission involves insuring deposits at member banks. FDIC insurance is backed by the full faith and credit of the U.S. government. This insurance covers various deposit accounts, including checking accounts, savings accounts, money market deposit accounts, and Certificates of Deposit.

How FDIC Insurance Applies to CDs

Certificates of Deposit issued by FDIC-insured banks are covered by FDIC insurance. The standard insurance amount provides coverage up to $250,000 per depositor, per insured bank, for each ownership category. This means that both the principal amount deposited and any accrued interest are protected, as long as the total remains within the $250,000 limit.

The “per ownership category” rule allows for greater coverage at a single institution. For example, a single account owned by one individual is insured up to $250,000. If that same individual also has a joint account with another person at the same bank, the joint account is insured separately for up to $500,000 (effectively $250,000 per co-owner). Additionally, certain retirement accounts, such as Individual Retirement Accounts (IRAs), are considered a distinct ownership category, providing another $250,000 in coverage per owner, separate from other personal accounts. This framework enables depositors to insure substantial sums at one bank by utilizing different account ownership structures.

Maximizing and Identifying Uninsured CDs

To maximize FDIC coverage, individuals can strategically structure their deposits across different ownership categories at the same FDIC-insured bank. Utilizing separate categories like individual accounts, joint accounts, and various types of trust or retirement accounts (e.g., IRAs) can significantly increase the total insured amount beyond the standard $250,000 limit per person. For instance, an individual could have $250,000 in a single account, another $250,000 in an IRA, and $250,000 as their share of a joint account, all at the same bank, with each category separately insured.

It is crucial to recognize that not all financial products resembling CDs are FDIC-insured. Investment products such as mutual funds, annuities, stocks, or bonds are not covered by FDIC insurance, even if they are purchased through a bank. Brokered CDs, while often FDIC-insured, derive their insurance from the issuing bank, not the brokerage firm. Therefore, it is important to verify that the underlying bank is FDIC-insured. To confirm a bank’s FDIC insurance status, look for the official FDIC sign at banking locations, or use the FDIC’s online BankFind tool.

The FDIC Process During a Bank Failure

In the rare event of an FDIC-insured bank failure, the FDIC promptly intervenes to protect depositors. The agency typically works to ensure that depositors have access to their insured funds very quickly, often within a few business days. This can occur either by arranging for another healthy bank to assume the failed bank’s insured deposits, or by directly issuing checks to depositors for their insured amounts.

The primary focus of the FDIC’s intervention is to ensure that no depositor loses any insured funds. Since the FDIC’s inception in 1933, no depositor has ever lost a penny of insured deposits. The process aims to minimize disruption for customers, allowing them to access their money with little or no action required on their part.