Quick Answer

Certificates of deposit (CDs) are insured at federally insured banks and credit unions up to $250,000. However, you may be able to extend coverage beyond the $250,000 threshold.

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Certificates of deposit (CDs) can be a wise option if you want a high return on your deposit and won't need your money during your CD's term. When you open a CD, you deposit money into your account for a specific period, such as six months or five years. In exchange, your bank or credit union pays you interest—usually with higher yields than standard savings accounts.

Locking up your money for a specific period can be unsettling, especially when the highest rates are often offered by online banks you may be unfamiliar with. However, rest assured that CDs are generally a safe place to deposit your money. In fact, CD accounts are insured in the event your bank or credit union fails.

Before opening a CD, ensure you understand the deposit insurance limit and how to maximize your coverage.

How Much Are CDs Insured For?

As with other types of savings accounts, certificates of deposit are almost always insured by deposit insurance up to $250,000 per depositor, institution and account type. If you open a CD through a bank, it will typically be insured by the Federal Deposit Insurance Corp. (FDIC). By contrast, if you open the account at a credit union, it will likely be insured by the National Credit Union Administration (NCUA).

All FDIC-insured banks and most—but not all—credit unions provide deposit insurance on their savings accounts. State-chartered credit unions may not offer deposit insurance because they are regulated by the state, not the NCUA. There are other exceptions as well, so verify a financial institution is federally insured before opening a CD account. Confirm a bank's status by looking for FDIC or NCUA signs at the office or using the FDIC's BankFind database or the NCUA's search tool.

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How to Maximize Your Deposit Insurance Coverage

While the $250,000 deposit insurance limit provides enough protection for most savers, it may be insufficient for those with more than $250,000 in savings. Fortunately, there are ways to maximize your insurance coverage.

Remember, the $250,000 cap is per depositor, per insured bank, per ownership category. So, you could extend your insurance coverage by having a joint owner or dividing your savings into accounts at two or more financial institutions. By opening additional accounts in distinct ownership categories at your current bank, you can also exceed the $250,000 threshold. The FDIC breaks down the different ownership categories as follows:

  • Single accounts: Savings accounts or checking accounts with one named owner
  • Specific retirement accounts: 401(k)s and IRAs
  • Joint accounts: Accounts owned by two or more individuals
  • Revocable trust accounts
  • Irrevocable trust accounts
  • Employee benefit plan accounts
  • Corporation/partnership/unincorporated association accounts
  • Government accounts

Similarly, NCUA ownership categories include the first six of the above list.

The FDIC offers an Electronic Deposit Insurance Estimator (EDIE) tool to help you calculate the coverage on your deposit accounts, including savings, checking, CDs and money market accounts at FDIC-insured banks.

What Happens if Your Bank or Credit Union Fails?

According to FDIC data, seven banks have failed since 2020, including three in the first half of 2023. However, the number of bank failures reached double digits each year from 2008 to 2014, a time that includes the Great Recession and the years following.

If your bank or credit union fails, it's reassuring to know your money is covered up to $250,000 per depositor, per insured bank, per category at federally insured banks and credit unions. In such an event, the federal government acts swiftly to protect insured deposits, either by facilitating a sale to a financially sound bank or by issuing checks to depositors up to the insured balance in each account.

Keep in mind, if your bank is sold to a new financial institution, your deposit contract with your failed bank is considered void, meaning the new bank isn't obligated to continue offering the same rates and terms on your account agreement. As such, you can choose to open a new account with the new financial institution or withdraw your money penalty-free and do business elsewhere.

How to Choose the Best CD

Before you open a CD account, it's wise to compare multiple CDs and consider these essential factors.

  • Type of CD: There are several different types of CDs, so it's essential to understand how they work and which type best suits your needs. For example, a no-penalty CD allows you to withdraw money from your CD before the end of the term without incurring a penalty, while a jumbo CD offers high interest rates when you make a large minimum deposit, often for $100,000 or more.
  • Term length: CD terms vary from as short as one month to as long as 10 years, though the terms you are offered will vary by bank or credit union. Consider your financial goals and needs to determine the best CD term for you. For example, if you have a short-term goal like saving for a home down payment or a vacation, choosing a shorter-term CD might make the most sense.
  • Interest rates: Find the best interest rate for your desired CD term by shopping and comparing rates at multiple banks and credit unions. Rates can vary widely depending on the CD term you choose and your financial institution. As of July 2023, average CD rates ranged from 0.20% for a one-month CD to 1.37% for a five-year CD. Annual percentage yields (APYs) tend to be higher with online banks, with many currently offering yields of around 5%.
  • Early withdrawal penalty: When comparing different CDs, consider the early withdrawal penalties charged by each bank if you withdraw money before the CD matures. These penalties can range from 60 days of interest to a year or more of interest. Generally, longer CDs come with higher penalties.
  • Minimum deposit: Most CDs require a minimum deposit ranging from $500 to $2,500 to open an account, though some CDs have no minimum deposit requirements.
  • Federal deposit insurance: Consider CDs from banks and credit unions that protect your money through FDIC and NCUA deposit insurance. You'll rest easy knowing your money is protected up to its limit if your bank fails.

The Bottom Line

If you've already built up an adequate emergency fund and have extra money you don't immediately need, adding CDs to your portfolio could make sense. Opening a CD from a federally insured financial institution protects your money up to each account's limit. Also, the CD's fixed rate provides a predictable return if you leave your money in your CD until it matures.

Deposit accounts like CDs can grow your money over time and are key components of your financial health. Your credit health is also essential, as strong credit improves your odds of qualifying for new credit with favorable interest rates. Experian offers numerous resources like free credit monitoring to help you build and maintain strong credit.