By Ben Luthi
Edited by Peggy BennettAre CDs Safe if the Market Crashes?
Quick Answer
CDs are generally safe during market crashes or recessions because they’re not tied to the stock market and benefit from federal insurance in the event that your bank or credit union fails.
Certificates of deposit (CDs) are generally considered safe, even in the event of a market crash or recession. Because CDs are fixed-income savings products, they're insulated from stock market swings and provide predictable returns, making them a reliable option during economic uncertainty.
However, there are a few things to keep in mind as you consider whether to put your money in a CD. Here's what you need to know.
Are CDs Safe if the Market Crashes?
CDs are not tied to the stock market, so their value doesn't fluctuate the way investments like stocks or bonds do. If the market crashes, your CD will continue to earn the interest rate you locked in when you opened the account.
Even if your financial institution fails, your funds are safe as long as your deposit is within the limits of federal insurance from the Federal Deposit Insurance Corp. (FDIC) or National Credit Union Administration (NCUA). FDIC and NCUA insurance both cover up to $250,000 per depositor, per category and per insured bank or credit union.
Are CDs Safe in a Recession?
CDs can be a stable, low-risk place to park your money during a recession. Unlike stocks or other investments, which may lose value, a CD offers a guaranteed return as long as you leave your money in place until it matures.
While rates for new CDs may go down during a recession, you don't have to worry about further rate drops because your annual percentage yield (APY) is locked in for the duration of your account's term.
Learn more: Where Should I Put My Savings in a Recession?
Can You Lose Money on a CD?
In most cases, you don't have to worry about losing money in a CD as long as your deposit stays within insured limits and you don't withdraw your money early.
The main risk is an early withdrawal penalty, which can eat into your earned interest or even your principal balance. If interest rates rise while your money is locked in a CD, you might also miss out on better rates elsewhere, but your principal stays safe.
Pros and Cons of CDs
CDs offer peace of mind in uncertain times, but they also come with limitations that might not fit every financial goal. Here's what to keep in mind as you consider whether a CD is right for you.
Pros
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Safe and insured: CDs are protected by the FDIC or NCUA up to $250,000, making them one of the safest places to stash your cash. That means even if your bank fails, your money is still secure within the coverage limits.
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Predictable returns: You'll earn a fixed interest rate for the term of the CD, so you know exactly what you'll get when it matures. This makes CDs great for budgeting and planning future expenses.
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No market exposure: Unlike stocks or mutual funds, CDs don't lose value in a downturn, making them ideal for conservative savers. They can offer peace of mind when the economy is unstable or volatile.
Cons
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Limited liquidity: Your money is tied up for a set term, and early withdrawals usually come with penalties. That could be a problem if you need quick access to cash during an emergency.
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Opportunity cost: If interest rates go up while your money is locked in, you won't benefit unless you open a new CD later. In other words, you might miss out on better returns available in the market during your CD's term.
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Potential for inflation outpacing returns: CD rates can lag behind inflation, especially with longer terms, reducing your real returns. Over time, your money may lose purchasing power if the CD rate doesn't keep up.
Should I Open a CD?
Before opening a CD, it's a good idea to pay attention to the interest rate environment. If rates are high or you expect them to fall, a CD can help you lock in a solid return. But if rates are rising or you might need access to your money soon, it may be better to wait or choose a more flexible savings option.
Here are some situations when opening a CD could make sense:
- You want a safe, guaranteed return.
- You have a specific savings goal with a set timeline to match your account maturity.
- You don't need the cash right away.
- You expect rates to drop soon.
- You're building a CD ladder to manage liquidity and interest rate risks.
Learn more: Best CD Rates
How to Navigate Market Volatility With a CD
While CDs are naturally insulated from market swings, there are still smart ways to maximize their safety and earning potential, especially when interest rates are changing or economic uncertainty is high. Here's how to make the most of your CD strategy:
- Stay within insurance limits. CDs are insured up to $250,000 per depositor, per bank, by the FDIC (or NCUA for credit unions). To stay fully protected, avoid exceeding that limit at a single institution.
- Build a CD ladder. Instead of locking up all your money in one long-term CD, open several with staggered maturity dates, known as a CD ladder. This lets you earn competitive rates while keeping some cash accessible as each CD matures.
- Choose short-term CDs in uncertain markets. If rates are expected to rise or you're unsure about your financial needs, opt for shorter CD terms. That way, you'll be able to reinvest sooner if better rates become available.
- Shop around for the best rates. CD rates vary widely between banks and credit unions. Compare offers from online banks, local institutions and national lenders to find the best return for your savings.
Learn more: Short-Term vs. Long-Term CDs: Which Is Best for You?
Keep Your Savings Safe and Steady
CDs can be a smart way to protect your money from market volatility, especially during economic downturns. While they won't make you rich overnight, they provide steady, guaranteed returns and peace of mind.
For a closer look at your options, check out our top picks for the best CD rates and choose the one that works best for you.
Grow your money safely with a CD
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About the author
Ben Luthi
Ben Luthi has worked in financial planning, banking and auto finance, and writes about all aspects of money. His work has appeared in Time, Success, USA Today, Credit Karma, NerdWallet, Wirecutter and more.
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