Locking up money in a certificate of deposit can be intimidating. For one, you have to hand over a lump sum of cash for months or years. And two, the highest rates tend to be at online banks, including some you’ve likely never heard of. But that doesn’t make them risky products.
Bank failures in 2023 might have made you worried about your own deposits. Remember that deposit insurance, such as from the Federal Deposit Insurance Corp., is what protects your money in the rare event that your bank closes.
CDs are a safe way to set aside money because they have federal deposit insurance. Here’s a closer look at how that works.
Are CDs FDIC insured?
The short answer is yes. Like other bank accounts, CDs are federally insured at financial institutions that are members of a federal deposit insurance agency. If a member bank or credit union fails, you’re guaranteed to receive your money back, up to $250,000, by the full faith and credit of the U.S. government.
» Need more funds insured? Learn how to insure over $250K
The Federal Deposit Insurance Corp. (FDIC) insures banks, and the National Credit Union Administration (NCUA) insures credit unions. You don’t apply or pay for this insurance, since institutions pay for it on behalf of their consumers. (Check out NerdWallet’s article on FDIC insurance for more details.)
Most financial institutions are federally insured, but a rare few aren’t. One way to check for coverage is by scrolling to the bottom of a bank’s website to find the acronym FDIC or NCUA. Or you can look up your financial institution’s status on the FDIC’s BankFind tool or the NCUA’s Credit Union Locator widget.
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🤓 Nerdy Tip
CDs require you to give up access to your money. If you’d prefer to keep access, a high-yield savings account can be a better FDIC-insured option. What if my bank fails?
Bank failures generally happen to very few banks. Even if your bank fails, FDIC insurance guarantees your money, up to its limit.
Even when banks collapse, consumers’ money has remained protected. First Republic Bank, for example, was the biggest bank to fail since the 2008 financial crisis, but regulators took steps quickly to protect customers. The FDIC secured that a financially healthy bank acquired First Republic Bank, and that bank, JPMorgan Chase, assumed all customers’ deposits, insured and uninsured. This process of another bank buying the failed bank is typical.
How safe are online CDs?
Just as safe as other CDs. Most online banks offer FDIC insurance just like brick-and-mortar institutions. A tell-tale sign is seeing “Member FDIC” at the bottom of a website. The main difference between online and traditional banks is branch access for customer support; online banks usually provide help by phone and online channels only.
You might not recognize the best online CD providers. That doesn’t mean they’re untrustworthy. In some cases, an online bank is part of a bigger bank that you might be familiar with. For example, Citizens Access is an online division of Citizens Bank and Marcus by Goldman Sachs is the online banking platform of the well-known Wall Street investment firm.
Both online and brick-and-mortar banks protect customers with security processes and systems intended to prevent fraud and hacker attacks to your account, such as multi-factor authentication. Banks won’t call, text or email unexpectedly for sensitive details, such as login details.
Tips for using CDs
Here are a few pointers to keep in mind before opening a CD.
1. Call customer support to see how quickly you can speak to a real person and whether help is available around the clock or only certain hours on weekdays.
2. Remember that CDs don’t allow additional contributions (except add-on CDs). CDs require that you put in a lump sum upfront. Unlike with a regular savings account, you can’t add more money after that initial deposit.
3. Keep a close eye on your CD’s maturity date and grace period. CDs have limited windows of time for you to withdraw or add more funds once the term expires. For more details, see what happens when CDs mature.
4. Make sure all your funds are insured. FDIC and NCUA insurance covers $250,000 per account. That includes any interest you earn. If you think some money won’t be insured, you can open CDs at different banks.
5. When you open a CD, save the paperwork. Banks typically don’t issue physical certificates as they once did, and with online CDs, statements might be entirely online. If you’re better at tracking physical instead of digital records, download and print any paperwork.
6. If you inherit or rediscover an old CD, call your bank to see if the CD is still active. If the bank doesn’t have a record of it, check this FDIC resource for the unclaimed property division in the state where the person opened that CD. Banks must eventually send inactive CDs to the state government, and the accounts can end up on a list of unclaimed property. Learn more about forgotten money.
See CD rates by term and type
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How do CDs work?
Learn more about choosing CDs, understanding CD rates, and opening and closing CDs.
Understanding CD rates:
Choosing CDs
Opening CDs
Closing CDs
See CD rates by bank
Here’s a quick list of CD rates at traditional and online banks and a brokerage:
