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When considering where to keep your hard-earned money, you want to be sure of two things: that the investment is safe and that it’s insured. This is especially true when it comes to certificates of deposit (CDs).
The U.S. government established the Federal Deposit Insurance Corporation (FDIC) to insure deposits made to banks. Here are the details about FDIC insurance when it comes to CDs.
Are CDs FDIC-Insured?
The short answer is yes, CDs are FDIC-insured. But there are a few things you need to understand before investing in CDs. For starters, the FDIC only insures deposits made to banks and savings associations. The FDIC does not insure investments made with securities firms, mutual funds or other types of investments.
When you purchase a CD from a bank, you are entering into a contract with the bank. If the bank fails, the FDIC will reimburse you up to the FDIC insurance limit of $250,000 per depositor per bank. Even if you have multiple accounts at the same bank totaling more than $250,000, the FDIC will only insure your accounts up to this limit.
What Is FDIC Insurance?
The FDIC is a government agency that insures deposits made to banks and savings associations. It was established in 1933 as a response to the banking crisis of the Great Depression. The FDIC protects customers’ deposits of up to $250,000 per depositor per bank.
The FDIC insures deposits in the form of checking and savings accounts, CDs, money market accounts and certain other accounts. It does not insure investments made in stocks, bonds, mutual funds or other securities.
What Is the FDIC Insurance Limit on CDs?
The FDIC insurance limit on CDs is $250,000 per depositor per bank. If you have multiple accounts at the same bank, your combined balances will be insured for up to $250,000 total.
The FDIC also insures joint accounts and trust accounts up to $250,000 per owner. This means that if you have multiple CDs with multiple owners at the same bank, each owner will be insured up to the FDIC insurance limit of $250,000.
Opening up different categories of accounts in the same bank is one way to maximize your FDIC insurance coverage. For example, certain retirement accounts, employee benefit accounts, government accounts and trust accounts are eligible for FDIC insurance.
What CDs Are Not FDIC-Insured?
Two types of CDs are not FDIC-insured: foreign CDs and brokered CDs. Foreign CDs are issued by foreign banks and do not qualify for FDIC insurance. Similarly, brokered CDs are bought and sold through brokers rather than banks and do not fall under FDIC insurance coverage.
Furthermore, not all banks are insured by the FDIC, which means you could be putting your hard-earned money at risk. CDs issued by non-FDIC insured banks can be significantly riskier than FDIC-insured investments, so it’s crucial to do your research before you invest. To ensure your investment is FDIC-insured, read the fine print and check that the bank is a member of the FDIC.
Are There Any Risks With CDs?
Even though CDs are typically FDIC-insured, there are still some risks associated with investing in them.
Most importantly, never purchase a CD from a deposit broker with a history of complaints or fraud. Anyone can claim to be a deposit broker. They do not need any formal licenses or certifications.
Before buying a CD through a broker, check their disciplinary history through the SEC and FINRA databases.
Another risk of CDs comes in the form of market risk. This means that inflation may outpace the growth of your CD interest, eroding your returns over time.
In addition, be aware of the CD maturity date. You cannot withdraw your locked funds until the maturity date expires, which may be as short as 30 days, but could be five or ten years in the future — or longer. If you do want to withdraw your funds before the CD matures, you may end up paying a hefty fee.
Before purchasing a CD, double-check the maturity date and make sure you’re really able to leave the funds locked in that long.
3 Things Not Insured by the FDIC
Although the FDIC insures deposits made to banks and savings associations, some types of investments are not insured. These include:
- Stocks, bonds, mutual funds, annuities and other investments
- Deposits made to foreign banks and investments in brokered CDs
- Losses due to fraud or theft. If you believe your funds have been stolen or fraudulently taken from your account, you should contact the bank or financial institution immediately.
Investing in CDs can be an excellent way to grow your savings. However, it’s essential to understand that not all CDs are FDIC-insured. To ensure your deposits are insured, be sure to purchase CDs from a bank that is FDIC-insured. Additionally, be aware of the FDIC insurance limit of $250,000 per depositor per bank. Finally, remember that the FDIC does not insure losses due to fraud or theft.
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