Are All CDs Protected by FDIC Insurance?

Top certificates of deposit (CDs) are paying annual percentage yields (APYs) of over 5.00% right now. That makes them attractive savings vehicles for people who are willing to tie up funds for a set amount of time. In terms of safety, most -- but not all -- CDs are protected by FDIC insurance. That means if your bank failed, you'd almost certainly be covered. Here's what you need to know about CD protection and FDIC insurance.

How FDIC protection works for CDs

FDIC stands for Federal Deposit Insurance Corporation. It's an organization that exists to protect customers against bank failure. If a bank fails, the FDIC's first course of action will be to look for another bank to take over the failing one. If that doesn't work, FDIC insurance kicks in so banking customers won't lose money. That coverage includes CDs.

For example, when Silicon Valley Bank failed last year, the FDIC brokered a deal with First-Citizens Bank & Trust Company. This meant customers could continue to use their savings accounts, checking accounts, and other products, even though their bank had collapsed.

Peoples' CDs were transferred to First-Citizens Bank. If customers didn't want to enter a new CD agreement, they could withdraw their money, including accrued interest, without paying the usual withdrawal penalty.

Our Picks for the Best High-Yield Savings Accounts of 2024

Capital One 360 Performance Savings APY 4.25% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings Member FDIC.	APY 4.25% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.	Min. to earn $0
American Express® High Yield Savings APY 4.25% Rate info 4.25% annual percentage yield as of July 1, 2024 Min. to earn $1 Open Account for American Express® High Yield Savings Member FDIC.	APY 4.25% Rate info 4.25% annual percentage yield as of July 1, 2024	Min. to earn $1
Citizens Access® Savings APY 4.50% Min. to earn $0.01 Open Account for Citizens Access® Savings Member FDIC.	APY 4.50%	Min. to earn $0.01

When might a CD not be FDIC protected?

FDIC insurance doesn't automatically apply to all CDs. Here are three scenarios in which your money won't be protected.

1. If the bank is not a member of FDIC

In fairness, it is very rare to find a bank, including an online bank, that's not covered by FDIC insurance. All the CDs on our list of best CD rates are FDIC insured, and the FDIC's latest data shows that over 4,500 banks and savings institutions are part of its program. However, there are some exceptions -- such as the Bank of North Dakota, which is backed instead by the state.

Action: Use the FDIC's online tool to double-check whether your bank is a member and that your funds will be covered by its insurance.

2. If you hold more than the FDIC will cover

FDIC insurance covers up to $250,000 per depositor, per FDIC-insured bank, per ownership category. Ownership categories are the way you hold money, rather than the account itself. For example, single accounts and joint accounts are different forms of ownership. If you have several accounts in just your name, it would still count as one ownership category even if they are spread across savings, checking, CDs, and money market accounts.

Action: If you hold more than $250,000 in single accounts with the same bank, think about ways to spread your money. You might consider opening a joint account or holding cash with more than one bank.

3. If your CD is not with a bank at all

Some CDs are offered by brokerages and credit unions. This means they don't fall under the FDIC's umbrella. However, they will likely still be insured -- it just works a bit differently. The following protections might apply instead:

• SIPC insurance: The Securities Investor Protection Corporation covers customers in the event of brokerage failure. It differs from FDIC coverage in the amounts and details of the protection, but the principle is the same.
• NCUA insurance: The National Credit Union Administration has its own insurance fund to protect consumers against credit union failure.

Action: If you're opening a CD with a financial institution other than a bank, find out what protections are in place. You'll almost certainly be covered, but it is worth making sure.

Key takeaway

CDs have captured people's financial imaginations recently. There's an understandable allure to a low-risk way to earn relatively high returns. Just make sure CDs are the right choice for you and that your CD is protected, whatever type of institution you open it with.