How Much Money Can You Put in a CD?

A Certificate of Deposit (CD) functions as a specialized savings account where a fixed sum of money is deposited for a predetermined period. This period, known as the term, can range from a few months to several years. In exchange for keeping funds locked away for the specified term, CDs typically offer a higher interest rate compared to standard savings accounts. CDs offer a low-risk option for predictable returns.

Understanding FDIC Deposit Insurance

The Federal Deposit Insurance Corporation (FDIC) plays an important role in safeguarding depositors’ money within the United States financial system. It is an independent agency that maintains stability and public confidence in the nation’s banking system. The FDIC insures deposits in member banks, protecting against loss if an insured institution fails.

FDIC insurance covers up to $250,000 per depositor, per insured bank, for each ownership category. This means that if you have multiple accounts at the same bank, they are typically aggregated under your name for the insurance limit. For example, a single individual with a CD and a savings account at the same bank would have their combined balances insured up to $250,000.

Different ownership categories allow for separate insurance coverage, which can be beneficial for larger deposits.

• A single account, owned by one person, is insured up to $250,000.
• Joint accounts, owned by two or more people, are insured up to $250,000 per co-owner, meaning a joint account with two owners would be insured for $500,000.
• Retirement accounts, such as individual retirement accounts (IRAs) and self-directed Keogh accounts, are also separately insured up to $250,000 per depositor.
• Trust accounts can also qualify for separate coverage if specific requirements are met, depending on the number of beneficiaries and the structure of the trust.

Beyond FDIC Limits

While the FDIC sets limits on insured deposits, financial institutions often establish their own requirements for Certificates of Deposit. Many banks and credit unions impose minimum deposit amounts to open a CD, which can vary widely. These minimums might range from a few hundred dollars to several thousand dollars, depending on the institution and the specific CD product.

Beyond minimums, some financial institutions might have internal maximums for CD deposits, though these are uncommon and not federally mandated. These caps are rare and vary significantly. They are distinct from FDIC insurance limits, which protect depositors.

For individuals with funds exceeding the $250,000 FDIC insurance limit, strategies exist to maximize deposit protection. One common approach involves distributing funds across multiple FDIC-insured banks. For example, if an individual has $500,000, they could deposit $250,000 into a CD at Bank A and another $250,000 into a CD at Bank B, ensuring all funds are fully insured. Another strategy involves utilizing different ownership categories within the same bank, provided each category meets the FDIC’s distinct requirements for separate coverage.

Opening a Certificate of Deposit

Before opening a Certificate of Deposit, individuals must gather specific personal information and make several key decisions.

• Information includes a valid form of identification, such as a driver’s license or state ID, along with proof of address and a Social Security Number or Individual Taxpayer Identification Number.
• Choosing the CD term, which determines the length of time the funds will be held, commonly ranging from three months to five years.
• Selecting the interest payment frequency, which can be monthly, quarterly, annually, or paid out at the CD’s maturity.

The actual process of opening a CD can vary depending on the financial institution. Many banks offer online applications, where individuals can input their information, select their desired CD terms, and electronically link an external bank account for funding. Once submitted, a confirmation is typically provided, and the funds are debited from the linked account within a few business days.

Alternatively, individuals can open a CD in person at a bank branch or over the phone. Opening a CD at a branch usually involves completing paperwork with a bank representative, providing the necessary identification, and arranging for the transfer of funds. For phone applications, a representative will guide the applicant through the process, collecting information and confirming details verbally.