Is a Certificate of Deposit FDIC Insured?

If you’re considering purchasing a certificate of deposit—whether it’s a regular or high-yield jumbo CD—you’re probably interested in the level of risk you may be taking on. Namely, what are the chances you could lose your deposit?

The short answer is there’s very little chance that you could lose your deposit because certificates of deposit are insured by the federal government. However, insurance coverage depends on the value of your CDs and other insured accounts you have with a financial institution, and which type of financial institution you purchased your CDs from. Let’s get into it.

Which Federal Agencies Insure CDs?

The federal agency that insures your certificate of deposit is determined by where (which type of institution) you purchased your CD.

If you purchase a CD from a bank, then the FDIC (Federal Deposit Insurance Corporation) insures it. The FDIC is an independent agency created by Congress back in 1933 in reaction to bank failures from the 1920s and ‘30s. Its purpose is to instill stability in the nation’s financial system to help people feel confident about depositing their money in the system. The FDIC likes to boast that, since its establishment, no depositors have lost any money on FDIC-insured funds because of bank failure.

If you purchase a CD from a credit union, it is still federally insured, just not by the FDIC. Instead, the NCUA (National Credit Union Administration) insures your deposit. The NCUA is also an independent federal agency created by Congress, and they also claim that not a single penny has been lost on insured accounts since their establishment in 1970.

If you purchase a CD from a broker, then you are buying what’s known as a “brokered CD.” The good news is that brokered CDs typically pay higher interest rates and have higher rates of return. The bad news is that they are not technically insured by the FDIC or the NCUA.

But there’s a silver lining. If the CD was purchased by a brokerage firm from a bank, then that purchase is insured by the FDIC—but the brokerage firm is technically the purchaser. If the firm is legit and stable, that coverage should help protect your investment. However, if the brokerage firm is on the shady side or fails, there’s no guarantee you will get any of your deposit back.

Are there Coverage Limitations?

The FDIC and NCUA both cover eligible CD products up to the same limit, which is $250,000 per account owner, per insured financial institution (bank or credit union). It’s important to note that “financial institution” means the institution as a whole, not individual branch offices of the same institution. So, even if you have over $250,000 in CDs with the same bank spread out over four separate branches, you’re only covered for $250,000 total, not $250,000 with each branch.

There are also different categories of qualifying accounts that could affect your coverage, such as joint ownership accounts, which would cover each co-owner of an account up to $250,000 per insured institution. 

It’s important to understand that coverage limitations include the total of qualifying accounts you have with an insured institution. If you are not sure, reach out to your bank to confirm the coverage based off your situation. 

For example, if you are a single account owner and have $100,000 in CDs, $100,000 in savings, and $50,000 in checking with Bank X, your deposits would be 100% covered because the total of all three qualifying accounts does not exceed $250,000. However, if the same three accounts add up to $300,000 in total deposits with Bank X, should Bank X fail, you would only be insured for $250,000 and would stand to lose $50,000. From a protection standpoint, a prudent move would be to transfer some of your money from Bank X to an insured account at Bank Y. Then, all $300,000 would be protected against bank failure.

So, CDs Are Risk-Free?

Nothing in life is risk-free. As mentioned, if your deposits go above the insured limit with a financial institution and that institution fails, you could lose the amount over and above the limit. You could also lose your deposits if you don’t purchase CDs from a qualifying institution. But, if you buy CDs from qualifying institutions and keep your balances at or below insured limits, your deposits are backed by the full faith of the federal government.

There is, however, a different kind of risk associated with any financial investment: opportunity cost. This is the risk you take when you’re not able to take advantage of other opportunities because your money is tied up, such as in a CD. So, with a CD, you always risk that you could be missing out on a better rate of return somewhere else while the CD matures. But you are typically trading that opportunity for a higher rate of return for the safety and peace of mind a federally insured certificate of deposit provides.  

With a certificate of deposit, you also risk penalties for early withdrawal of your deposit if you are unable (or unwilling) to leave your money untouched for the CD term length. While there are no-penalty CDs that allow you to make early withdrawals without paying a fine, most CDs charge a penalty that could reduce—or even completely negate—any earned interest if you withdraw your money early. So, should you need to cash in a certificate of deposit to cover an emergency, and it’s not a no-penalty CD, you risk losing some or all of any interest you’ve earned up to that point.

To put it simply—no, certificates of deposit are not without risk. They are, however, one of the safest investments you can make because the United States government has promised to stand behind them…up to the aforementioned limits so long as they qualify for insurance.

So, given that a certificate of deposit can typically earn you a higher interest rate than a savings account and is just as protected against bank failure, a CD could be a good addition to your investment portfolio. Credit One Bank now offers a High-Yield Jumbo CD with one of the most competitive rates and a 10-Day Rate Guarantee^* that allows you to buy with confidence.

Want to know more about which kinds of accounts and investments are FDIC insured? Check out this informative infographic by Credit One Bank.

^{*After you open a CD account with us, if we increase the interest rate and Annual Percentage Yield (APY) we offer for the same CD product and term you selected within 10 calendar days of your account opening date (account opening date plus 9 calendar days), we will automatically give you the increased rate and APY.}