Are Certificates of Deposit (CDs) Safe?

A Certificate of Deposit (CD) is a type of savings account where you deposit a fixed sum for a specific period, and the financial institution pays you interest. Your money is held for a set “term,” which can range from a few months to several years. CDs are considered a safe way to save money, offering a predictable return.

The Role of Deposit Insurance

The safety of your CD comes from federal deposit insurance programs. For banks, the Federal Deposit Insurance Corporation (FDIC), an independent federal agency, provides this protection. The FDIC insures deposits in member banks, protecting customers’ money even if the financial institution fails. This insurance is automatic for any deposit account opened at an FDIC-insured bank, and depositors do not need to purchase it.

For credit unions, the National Credit Union Administration (NCUA) provides deposit insurance through the National Credit Union Share Insurance Fund (NCUSIF). The NCUA is also an independent federal agency that regulates and insures deposits at federally insured credit unions. Both the FDIC and NCUA insurance funds are backed by the full faith and credit of the United States government. These programs cover various deposit accounts, including Certificates of Deposit. If a financial institution fails, the respective agency ensures depositors receive their insured funds.

Understanding Coverage Limits

The standard deposit insurance coverage limit is $250,000 per depositor, per insured institution, for each ownership category. All funds held by one person in the same ownership category at a single FDIC-insured bank or NCUA-insured credit union are combined and insured up to this limit. For example, if you have a checking account and a CD in your name at the same bank, their combined balance is insured up to $250,000.

You can extend your insurance coverage beyond this standard limit by utilizing different ownership categories. Common ownership categories include single accounts, joint accounts, and certain retirement accounts like IRAs. A joint account with two owners is insured up to $500,000, as each owner’s share is separately insured for $250,000. Retirement accounts are also insured separately from other individual accounts, providing additional coverage. By strategically distributing funds across different ownership categories or among multiple insured financial institutions, you can maximize your total insured amount.

Verifying Your CD’s Protection

Before placing funds in a CD, it is important to confirm that the financial institution offering it is federally insured. For banks, look for the “Member FDIC” sign at branches, on their websites, or in their advertisements. You can also use the FDIC’s online BankFind tool to verify a bank’s insurance status by searching for its name.

For credit unions, look for the “Federally Insured by NCUA” sign or logo. The NCUA provides an online Credit Union Locator tool to confirm a credit union’s federal insurance status. While most CDs are covered, it is prudent to understand that certain non-traditional products, such as some brokered CDs or market-linked CDs, might have specific insurance implications. Brokered CDs are generally FDIC-insured if issued by an FDIC-insured bank, and market-linked CDs are also typically FDIC-insured on the principal amount if held to maturity. Always confirm the specific terms of any CD product to ensure it meets your insurance expectations.