Are CDs FDIC insured, and why does that matter?

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Certificates of deposit (CDs) are widely considered one of the safest ways to earn interest on your money. But are they actually protected if your bank fails?

The short answer is yes — in most cases. Your deposits are insured by the Federal Deposit Insurance Corporation (FDIC), an independent federal agency, up to a certain limit. However, not all CDs are covered by the FDIC, which is why it’s important to understand how this insurance works and ensure your money is protected.

CDs are insured when they are issued by an FDIC-member bank. The FDIC is a government agency that protects depositors in the event a bank fails. If your bank goes under, the FDIC steps in to reimburse your insured deposits.

FDIC insurance covers up to $250,000 per depositor, per insured bank, per ownership category. Note that this limit applies to your total deposits at a single bank — not each individual account — including checking accounts, savings accounts, and money market accounts. It does not, however, extend to investment products such as stocks, bonds, mutual funds, or annuities.

Additionally, you may be able to increase your total coverage by structuring accounts differently. For example, holding separate accounts as an individual, jointly with a spouse, or in a trust can expand your FDIC insurance coverage across different ownership categories.

CDs are offered by banks. However, credit unions have similar products known as share certificates.

Share certificates function very much like CDs, so much so that customers won’t notice a difference between them. In fact, many credit unions refer to their share certificates as CDs to prevent confusion and describe the account dividend earnings as interest.

Rather than FDIC insurance, credit union share certificates or CDs are backed by up to $250,000 of coverage per depositor through the NCUA. Although the insurance is issued under the NCUSIF, it's typically referred to as NCUA insurance.

As with FDIC coverage, NCUA insurance applies in the unlikely event that a credit union fails. However, no consumer has ever lost money from an account insured by the NCUSIF.

Learn more: Credit union vs. bank: Which is right for you?

If your bank or credit union fails, your account will be transferred to another federally insured institution. All of the money — up to the coverage limit — will be intact, so you won't lose any money if the bank or credit union fails.

In cases where the bank or credit union isn't absorbed by another institution, the FDIC or NCUA will write you a check for the amount you had in a qualifying account.

One recent example is Silicon Valley Bank, which closed in 2023. When it closed, the FDIC transferred all of the bank's deposits to Silicon Valley Bridge Bank, a bank operated by the FDIC. Shortly thereafter, the FDIC entered into an agreement with First Citizens Bank & Trust Company; First Citizens Bank agreed to take over all of Silicon Valley Bank's deposits and loans.

Those with deposit accounts at Silicon Valley Bank, including savings accounts or CDs, automatically became customers of First Citizens Bank. The deposits were assumed by First Citizens Bank, and qualifying accounts were backed by FDIC insurance.

Although your deposit is safe thanks to FDIC or NCUA insurance, there is no guarantee that the new bank or credit union will honor the terms and rates of the existing CD. When the new institution takes over, it reviews existing accounts, and it may decide to adjust the rates on existing accounts; your CD agreement is not a binding contract in cases of bank or credit union failures.

The bank or credit union will notify you of the account changes, such as changes to the CD’s term or APY, in writing. Once you receive that notification, you can opt to withdraw funds from the CD without an early withdrawal penalty, or you can enter into a new CD agreement with the bank.

CDs and share certificates are completely independent from the stock market. While the value of your stocks, bonds, or mutual funds may fluctuate, your money in a CD is secure, and the rate of interest is set by the terms of the CD.

In general, CDs have lower returns than the long-term returns of the stock market when measured over years, or even decades. Although some CDs are available with APYs of 4% or higher right now, the market's long-term, historical average return is about 10%. For long-term goals such as retirement, your money is better off invested in the market so you can take advantage of the potential for higher growth.

But for shorter-term goals where you don't have the time to handle market fluctuations, or those that are near or in retirement, a CD can be a risk-free tool to increase your savings. A CD often allows you to earn a higher rate of return than you'd get with a savings account, and it can provide some stability in times of market volatility.

Read more: Why a CD should be part of your retirement savings plan

Deposit insurance covers up to $250,000 per depositor, per insured bank, per ownership category. Owner categories include:

Single accounts

Joint accounts

Certain retirement accounts

Irrevocable trust accounts

Employee benefit plan accounts

Corporation, partnership, or unincorporated association accounts

Government accounts limits

How does that work for you? Consider this example: In the case of CDs, you may have a single account and a joint account at one bank. If that's the case, you'd have a total of $750,000 of coverage: $250,000 for the single account, $250,000 for your ownership stake of the joint account, and $250,000 for your partner's stake in the joint CD.

You can use the FDIC deposit insurance calculator to find out how much of your deposits are covered.

Now that you know how FDIC and NCUA insurance works with CDs, you can develop a strategy for your deposits to maximize your protection. If you have a substantial amount of assets — meaning more than $250,000 that you want to deposit into a CD — these strategies will help you insure all of your deposits:

Each adult can open their own account: The coverage rules apply per depositor, per bank. If there are multiple adults in your household, such as a partner and adult child, each adult should open a CD in their own names. Each person would qualify for $250,000 of coverage.

Open a joint account: Joint CDs are a different ownership category, so you can open an account with your spouse with the same bank and qualify for up to $500,000 of additional coverage.

Open an account with another bank or credit union: If you reach the coverage limits of a single or joint CD with one financial institution, consider opening another account to deposit the remainder with another bank. Diversifying your deposits across multiple banks or credit unions will ensure all of your money is safe.

Review your finances once a year to ensure your deposits — plus earned interest — do not exceed NCUA or FDIC insurance limits. If your deposits surpass the coverage maximums, you may need to make adjustments or move accounts to a new bank or credit union to adequately protect your deposits.

Read more: What is the Certificate of Deposit Account Registry Service (CDARS), and how does it work?

The FDIC and NCUA provide deposit insurance up to $250,000 at each financial institution. If your deposits exceed that limit, here’s how to ensure your money is protected.

Can a CD lose money? In most cases, no. But there are rare situations when a CD may lose money. Learn how to protect your CD principal and interest from loss.

If you have more than $250,000 in bank deposits to insure, you may want to go through CDARS. Learn more about how this service works.

Worried about your bank account in a recession? Learn how your money is protected, what risks exist, and how to keep your savings safe during downturns.

For those approaching retirement, "safe" investments like CDs or annuities can be appealing, but there are key differences you should know.

Deposit accounts like CDs work differently than market investments. Yet, a CD is considered a certain type of investment. Learn more about CD investments and how they can fit into your overall portfolio.