Are My Certificates of Deposit (CDs) FDIC-Insured?
Certificates of deposit (CDs) offer a great, more structured way to save. CDs have specific time terms that typically vary from a few months to a decade. After you make your initial deposit, you can't access your funds until the term ends. In exchange for this lack of access to your funds, you get a higher interest rate, and CD rates tend to outpace those on savings accounts. Some savers might wonder, though, if the differing nature of these deposit accounts makes CDs less safe than savings accounts. Consider working with a financial advisor as you work to build your savings.
Are CDs FDIC-Insured?
The good news is that money in a certificate of deposit is just as safe as it is in a savings account. CDs, like all deposit accounts, have FDIC insurance up to the $250,000 legal limit.
Established by the Banking Act of 1933, the FDIC protects your money in the event of bank failure. So if your bank starts to go under, you don't need to rush to the nearest branch to withdraw all your money. Instead, the FDIC will get that money back to you within a couple of business days.
FDIC insurance applies to the first $250,000 you have in your deposit accounts at a given bank. The FDIC won't insure money beyond this limit in your total accounts with one bank. So if you have a savings account and two CDs at a given bank, with $300,000 across the three accounts, then in the event of a bank failure you would only be guaranteed to get back $250,000 of that $300,000.
How FDIC Insurance Works
The FDIC returns your money to you in one of two ways. One option is the FDIC will open another deposit account for you at a different financial institution. They'll fund this new account with the exact, insured amount left behind at the closed bank (again, up to $250,000). Alternatively, the FDIC will issue a check to you for the amount that was in the closed account with the failed bank.
Since it might take a couple days – longer if you have high balances to recover – you may want to keep some emergency funds elsewhere. Your best bet is to keep another account at a different institution. That way, you can cover your expenses in the interim.
Also note that FDIC insurance does not cover any money lost due to identity theft or fraud. In those cases, you'll need to contact your bank, credit bureaus and the authorities. Banks often have systems in place to protect you from any liability for unauthorized transactions.
CDs at a credit union have National Credit Union Administration (NCUA) insurance instead of the FDIC. The NCUA uses its National Credit Union Share Insurance Fund to insure your credit union deposits up to $250,000 as well.
Are Brokered CDs FDIC-Insured?
It's important to note that brokered CDs are a different kind of CD and aren't always FDIC insured. Brokered CDs are certificates of deposits that you purchase through a brokerage account. While this allows you access to a wider range of CDs in one account, the risk is that they don't always have an FDIC guarantee. This would be the case when the brokered CD acts more as an investment account, and the CD is not in your name.
Still, it's possible to open a brokered CD and guarantee insurance protection. Check out FDIC-insured Fidelity CDs for one such example.
If you need some more structure in your savings accounts, definitely consider opening a CD. You can even open multiple CDs at the same time, with staggered maturity dates, to build yourself a CD ladder. This will allow you to take advantage of savings and payouts every few months or years, depending on how you set it up. Just keep an eye on your deposits as they grow to avoid ever having uninsured money.
Tips for Saving Responsibly
Savings accounts and CDs are just one part of your financial picture. To build a long-term financial plan, you may want to speak with a financial advisor. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.
It's definitely important to make sure all your deposits have FDIC insurance. Luckily, most banks have it and most credit unions carry NCUA insurance as well. Still, you may want to check out what other protections and securities your bank provides in the event of identity theft or fraud. Knowing these features and processes will help keep your money safe.
If you're really looking for growth, be sure to take a look at the best online savings accounts out there. Many of the best rates at online banks, which may spook some savers. Still, you can rest assured that the FDIC insures online savings accounts, too.
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