Does FDIC Insurance Cover Certificates of Deposit?

Certificates of Deposit (CDs) are covered by Federal Deposit Insurance Corporation (FDIC) insurance. This protection extends to depositors’ funds held in various account types at insured banks, safeguarding their money in the event of a bank failure. The FDIC plays a significant role in maintaining public confidence within the financial system by ensuring the safety of deposits. Funds placed in CDs, along with other deposit accounts, are protected up to specific limits.

What is FDIC Insurance

The Federal Deposit Insurance Corporation (FDIC) is an independent agency established by Congress. Its mission is to maintain stability and public confidence in the nation’s financial system. The FDIC achieves this by insuring deposits at thousands of U.S. banks and savings associations. This deposit insurance is backed by the full faith and credit of the United States government.

The FDIC’s coverage extends to deposit products, which include checking accounts, savings accounts, money market deposit accounts (MMDAs), and Certificates of Deposit (CDs). However, it does not cover non-deposit investment products, such as stocks, bonds, mutual funds, annuities, or life insurance policies, even if these are offered by an FDIC-insured bank.

How FDIC Covers Certificates of Deposit

FDIC insurance applies to Certificates of Deposit, protecting both the principal and any accrued interest. The standard coverage is $250,000 per depositor, per insured bank, for each ownership category. This means that all funds held by a depositor in the same ownership capacity at a single insured bank are combined when determining the total insured amount. For example, if an individual has multiple CDs and a savings account at the same bank under their sole name, the total of these accounts is aggregated for the $250,000 limit.

The $250,000 limit applies to the combined total of all deposits within a specific ownership category at one institution. If a depositor has a CD with a principal of $240,000 and $10,000 in accrued interest at an insured bank, the full $250,000 would be covered. If the total amount in a single ownership category exceeds this limit at one bank, the amount over $250,000 would not be insured.

Expanding Coverage Through Different Ownership Categories

Depositors can insure more than the standard $250,000 limit at a single bank by using different ownership categories. Each distinct ownership category at the same insured bank receives separate FDIC insurance coverage up to the $250,000 limit. This allows individuals to increase their total insured funds within one financial institution.

Common ownership categories include:

• Single accounts, owned by one person with no beneficiaries.
• Joint accounts, co-owned by two or more individuals.
• Certain retirement accounts, such as Individual Retirement Accounts (IRAs) and 401(k)s.
• Revocable and irrevocable trust accounts.

For instance, an individual could have $250,000 insured in a personal CD and an additional $250,000 in a joint CD with another person at the same bank, effectively doubling their coverage.

What Happens When an Insured Bank Fails

If an FDIC-insured bank fails, the FDIC promptly resolves the situation and ensures depositors have access to their insured funds. The FDIC acts quickly to either transfer insured deposits to another healthy institution or directly pay depositors. This process typically allows depositors to access their insured money within a few business days.

The FDIC provides insured deposits either by establishing a new account at a different insured institution or by issuing a check for the insured balance. Since 1933, no depositor has lost insured deposits due to a bank failure. This record underscores the reliability of FDIC insurance.