Are Certificates of Deposit FDIC Protected?

A Certificate of Deposit (CD) offers a secure way to save money, functioning as a type of savings account where funds are held for a predetermined period at a fixed interest rate. A significant aspect of CDs is the protection offered by the Federal Deposit Insurance Corporation (FDIC). This government-backed insurance safeguards depositors’ funds in the event of a bank failure.

Understanding Certificates of Deposit (CDs)

A Certificate of Deposit (CD) is a time deposit account where a fixed sum of money is held for a specified duration. In exchange for this commitment, the bank provides a fixed interest rate, often higher than traditional savings accounts. The CD has a specific maturity date, and funds are locked in until then. Withdrawing funds before maturity usually incurs penalties, reducing the overall return. CDs are a low-risk savings option for individuals seeking predictable returns.

Understanding FDIC and Its Role

The Federal Deposit Insurance Corporation (FDIC) is a U.S. government agency established in 1933. Its mission is to maintain stability and public confidence in the nation’s financial system. The FDIC insures deposits in banks and savings associations, protecting depositors if an FDIC-insured bank fails. The FDIC is funded by premiums paid by insured banks and does not receive congressional appropriations. If a bank fails, the FDIC ensures depositors have prompt access to their insured funds.

Standard FDIC Coverage for CDs

Certificates of Deposit are insured by the FDIC, protecting principal and any accrued interest. The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. All funds a single individual holds in the same ownership category at one FDIC-insured bank aggregate for this $250,000 limit.

For instance, if an individual has multiple CDs or a combination of checking, savings, and CD accounts under their sole name at the same bank, the total balance across all these accounts is insured up to $250,000. This limit applies to each distinct FDIC-insured financial institution. Funds deposited at different banks, even if owned by the same individual, are separately insured up to the standard limit at each institution. The accrued interest on a CD is also covered up to the $250,000 limit.

Expanding FDIC Protection Through Ownership Categories

Individuals can achieve higher FDIC insurance coverage at a single institution by utilizing different account ownership categories. Each distinct ownership category receives its own separate $250,000 insurance limit. For accounts owned by a single individual, the $250,000 limit applies to the total of all their deposit accounts in that individual capacity at a given bank.

Joint accounts, held by two or more people, are insured separately from individual accounts. A joint account with two co-owners has $500,000 in coverage, representing $250,000 for each owner, distinct from any individual accounts they may hold at the same bank.

Certain retirement accounts, such as Individual Retirement Accounts (IRAs), SEP IRAs, and SIMPLE IRAs, also qualify for separate FDIC insurance coverage up to $250,000 per depositor at each insured bank. Trust accounts, including revocable and irrevocable trusts, can further expand coverage, with insurance based on the number of unique beneficiaries. For example, a revocable trust account naming three unique beneficiaries could be insured up to $750,000 at one bank.