Are Share Certificates FDIC Insured?

Understanding how funds are safeguarded in financial institutions is crucial for making informed financial decisions. Various mechanisms exist to protect consumer deposits against unforeseen circumstances involving financial institutions.

Understanding Share Certificates

A share certificate is a type of savings account offered by credit unions, equivalent to a Certificate of Deposit (CD) offered by banks. This financial product typically offers a fixed interest rate for a predetermined period, known as the term, which can range from a few months to several years.

Funds deposited into a share certificate are generally locked in for the duration of the chosen term. Early withdrawal before the maturity date usually incurs a penalty, such as forfeiture of interest or a portion of the principal.

Deposit Insurance for Banks and Credit Unions

The United States has distinct federal agencies responsible for insuring deposits at banks and credit unions, providing a safety net for consumers’ funds. The Federal Deposit Insurance Corporation (FDIC) insures deposits at banks, protecting depositors if an FDIC-insured bank fails.

The National Credit Union Administration (NCUA) charters and supervises federal credit unions. The NCUA operates the National Credit Union Share Insurance Fund (NCUSIF), which insures deposits at federally insured credit unions. While the FDIC covers banks and the NCUA covers credit unions, both agencies aim to protect depositors’ savings in the event of an institutional failure. Their insurance coverage is similar in scope and limits, providing comparable protection to consumers.

What Deposit Insurance Covers

Deposit insurance provided by federal agencies covers various types of accounts at both banks and credit unions, safeguarding principal and accrued interest up to insurance limits. At FDIC-insured banks, common protected accounts include checking accounts, savings accounts, money market deposit accounts, and Certificates of Deposit (CDs).

For federally insured credit unions, the NCUA insures share draft accounts, share savings accounts, and money market share accounts. Share certificates are also covered by the NCUA’s share insurance fund. Therefore, share certificates held at a federally insured credit union are protected.

What Deposit Insurance Does Not Cover

While deposit insurance provides significant protection for traditional bank and credit union accounts, it does not extend to all financial products or investments. Investment products such as stocks, bonds, mutual funds, and annuities are not protected by deposit insurance. These investment vehicles carry market risk, meaning their value can fluctuate, and they are not guaranteed by the government. Life insurance policies, even if purchased through a bank or credit union, are also not covered. Additionally, the contents of safe deposit boxes are not insured by the FDIC or NCUA.

Understanding Insurance Limits and Verification

Both the FDIC and NCUA provide a standard insurance coverage limit of $250,000 per depositor, per insured institution, for each account ownership category. This means the total of all accounts within a specific ownership category (e.g., individual accounts) at one institution is insured up to this amount. Different ownership categories, such as individual accounts, joint accounts, and certain retirement accounts, can allow for separate coverage, potentially increasing the total insured amount.

Consumers can verify if their financial institution is federally insured. For banks, the FDIC seal is displayed at branches and on websites, and the FDIC’s BankFind tool can confirm status. Federally insured credit unions display the official NCUA insurance sign, and the NCUA provides an online Credit Union Locator tool.