Just like it offers insurance for money in your savings and checking accounts, the Federal Deposit Insurance Corporation (FDIC) offers protection for certificates of deposit (CDs) for up to $250,000 in case of a run on your bank.
Key Takeaways
- The Federal Deposit Insurance Corporation (FDIC) insures CDs held at member institutions for up to the deposit insurance limit of $250,000.
- This limit is applicable to the total of eligible account types for a deposit holder at each member institution.
- After a bank failure, the FDIC will either set up another account for you at a different bank or you will receive a check with your funds
- FDIC's insurance is only applicable to certain types of deposits at FDIC-member institutions.
The FDIC Covers CDs in the Event of Bank Failure
The best CD rates start around a very attractive 5% and go up. But the recent regional banking turmoil may have you concerned about your investment in case of a bank failure.
CDs are treated by the FDIC like other bank accounts and will be insured up to $250,000 if the bank is a member of the agency. If you have multiple CDs across different member banks, each will be protected up to that limit.
Furthermore, if you have a checking account balance of $40,000, a savings account balance of $100,000, and a CD in the amount of $60,000 at the same bank, that would be a total of $200,000 that is covered by the FDIC insurance. However, your total deposits in excess of $250,000 are treated as uninsured deposits and will usually not be covered.
The FDIC is an independent federal agency that was created in 1933 to support stability in the financial system. If a bank fails, the agency pays depositors with money from the Deposit Insurance Fund (DIF), to which its member institutions contribute.
For example, when Silicon Valley Bank and Signature Bank collapsed in March, the FDIC, along with the U.S. Treasury and the Federal Reserve, worked to make their depositors whole, and it cost the FDIC $22.5 billion.
How Does FDIC Return My Funds If My Bank Fails?
In the event of a bank failure, the FDIC could replace your insured funds in one of the following ways. Usually, within a few days following the bank closure, the FDIC will set up and fund a new account in your name at another bank for the same amount you were insured for. Otherwise, you would receive a check from the FDIC covering the full amount of your deposits.
How Do I Know if My Bank is an FDIC Member?
As of May 31, 2023, the FDIC had 4,672 members registered members and you can ask a representative at your bank if it's a member. Many banks display the FDIC logo at their branches or online. If you are still in doubt, the FDIC has a BankFind toolthat helps you locate FDIC-insured banks in your area.
Still in doubt? You can estimate the insurance coverage for your specific CD using FDIC's Electronic Deposit Insurance Estimator (EDIE) tool.
Are CDs at Online Banks Insured?
Yes, online banks can be members of the FDIC, just like brick-and-mortar banks. If so, your savings will be protected up to the same level of $250,000. The bank will likely display the FDIC logo and membership number on its website. You could also speak with a representative from the bank, or get the required information from the FDIC.
FAQs
The FDIC Covers CDs in the Event of Bank Failure
Is a CD safe if a bank fails? ›
Deposits at FDIC-insured banks are covered up to $250,000 per person per account ownership type. For example, a $250,000 certificate of deposit in a single-owner account would be fully insured in the event of a bank failure or liquidation.
Is it possible to lose money on a CD? ›
Losing money in a CD is highly unlikely. However, it's not impossible. If you're thinking about opening one, read the fine print about early withdrawal penalties, and be sure to compare more flexible options that don't have a maturity date. And even if you decide to open a CD, don't set it and forget it.
Are CDs safe if the market crashes? ›
Are CDs safe if the market crashes? Putting your money in a CD doesn't involve putting your money in the stock market. Instead, it's in a financial institution, like a bank or credit union. So, in the event of a market crash, your CD account will not be impacted or lose value.
How to get money from FDIC if bank fails? ›
After a seizure, the bank's employees work for the FDIC. The customer experience does not change much. Depositors are still able to retrieve their money, usually up to the insured amount, including by writing checks, accessing their safe deposit boxes, and withdrawing money through an ATM.
Are CDs safe if the government defaults? ›
While no one knows precisely what a default would entail, consumers can rest assured that their Treasuries and certificates of deposit are reasonably safe.
What is the biggest negative of putting your money in a CD? ›
The cons of CDs
With a savings account, the money is easily accessible in case of a financial emergency or a change in spending priorities. With CDs, you typically can't withdraw the money whenever you want—at least not without paying a penalty.
Is a CD safer than a savings account? ›
Along with savings accounts and money market accounts, CDs are some of the safest places to keep your money. That's because money held in a CD is insured. So long as you purchase your CD account through an FDIC-insured bank, you're covered in case the bank shuts down or goes out of business.
Is your money guaranteed in a CD? ›
CDs opened at FDIC-insured banks, or credit unions backed by the NCUA, are guaranteed by the federal government. Should the bank or credit union fail, your savings won't be lost, as long as you're within deposit limits.
How much will a $500 CD make in 5 years? ›
This CD will earn $117.15 on $500 over five years, which means your deposit will grow by 23.4%.
Earnings on a $10,000 CD Over Different Terms
| Term Length | Average APY | Interest earned on $10,000 at maturity |
|---|
| 6 months | 2.54% | $127.67 |
| 1 year | 2.58% | $261.07 |
| 18 months | 2.18% | $332.10 |
| 2 years | 2.09% | $426.48 |
3 more rowsSep 3, 2024
One major drawback of a CD is that account holders can't easily access their money if an unanticipated need arises. They typically have to pay a penalty for early withdrawals, which can eat up interest and can even result in the loss of principal. “During times of uncertainty, liquidity is often paramount.
Should I buy CD during a recession? ›
During the Great Recession and its aftermath, the stock market went through turbulent shifts, resulting in great losses for some stockholders. CDs are one option that can help protect your investment from times of turmoil by providing a stable income.
What happens to CD if the bank collapses? ›
CDs are treated by the FDIC like other bank accounts and will be insured up to $250,000 if the bank is a member of the agency.
Which banks are in danger of failing? ›
The banks of greatest concern are Flagstar Bank and Zion Bancorporation, according to the screener. Flagstar Bank reported $113 billion in assets with a total CRE of $51 billion. The bank, however, only had $9.3 billion in total equity, making its total CRE exposure 553% of its total equity.
Where should I put my money if banks fail? ›
To avoid a financial hit if your bank fails, stick to insured institutions and account types, stay under account balance limits and use different ownership arrangements. A financial advisor can help you build a financial plan that accounts for your savings. Speak with an advisor who can help today.
Are CDs protected from bankruptcies? ›
Yes, the CD"s would be exempt. Mr. Larkin is a San Diego Bankruptcy Attorney and is licensed in California.
Where to put money if banks fail? ›
If your bank closes, the FDIC will either try to move your money to another bank in good standing or mail you a check for up to the insured amount. If it doesn't move your money, the bank should mail you a check within two business days of closing.
How risky are certificate of deposits CDs? ›
The biggest risk to CD accounts is usually an interest-rate risk, as federal rate cuts could lead banks to pay out less to savers.
Is my money safe in a CD account? ›
Certificates of deposit (CDs) are perfectly safe places to stash your cash, whether they're purchased online or at a brick-and-mortar bank, as long as you follow a few rules. Make sure the money in your CD is federally insured against losses by either the Federal Deposit Insurance Corp.
