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- CDs are types of savings accounts and are generally safe because they are federally insured.
- Federally insured CDs are available at brick-and-mortar banks, online banks, and brokerage firms.
- CDs have some disadvantages to be mindful of, including early withdrawal penalties and inflation risk.
Certificates of deposit might be on your radar if you plan to set aside some money for a short-term goal, especially since CD rates have risen over the last two years. But if you're unfamiliar with these accounts and don't want to take much risk, you might worried about whether your money is secure.
To help you understand whether CDs are safe, we'll go over how federal insurance protects these accounts as well as potential disadvantages.
Are CDs safe?
CDs are generally a safe place to keep money because you're putting money into a federally insured bank account.
When you see a logo that says "Member FDIC" or "federally insured by the NCUA" on a financial institution's website, that means its deposit accounts are insured. The FDIC (Federal Deposit Insurance Corporation) provides federal insurance for banks, and the NCUA (National Credit Union Administration) insures credit unions.
"If a bank were to go under, knowing that it's FDIC-insured should give you some solace and some comfort because anything that's FDIC-insured is backed by the full faith and FDIC insurance program," explains Scott Stanley, CFP and founder of Pharos Wealth.
The FDIC and NCUA offer up to $250,000 per account owner, per ownership category at each financial institution. Examples of ownership categories include individual bank accounts and joint bank accounts.
Federal insurance limits for CDs
To help you understand federal insurance limits on CDs, we'll go over an example where you would have uninsured deposits.
Let's say you plan to open a CD with a $100,000 minimum opening deposit at your current financial institution. You already have a savings account with $150,000 and a checking account with $25,000. If these are all individual bank accounts, they fall under the same ownership category. A maximum of $250,000 can be federally insured at your bank. Since your accounts would hold up to $275,000, there would be $25,000 left uninsured.
| Account | Amount Deposited |
| CD (individual account) | $100,000 |
| Savings account (individual account) | $150,000 |
| Checking account (individual account) | $25,000 |
| Total | $275,000 |
| Amount left insured | $25,000 |
There are still ways to keep your money insured if you want to deposit more than the standard federal insurance amount into a CD.
"If it's just in your name, then any one given bank can only insure up to $250,000 for you. You could go to Bank One and put in $250,000, and then open up another account in Bank Two and put $250,000 in a CD," suggests Sefa Mawuli, CFP and financial planner at Pavlov Financial Planning.
Another option to obtain more federal insurance is to obtain accounts in different ownership categories. You could open a joint bank account, which would insure up to $250,000 per account owner. Considering the example listed above, if you opened a joint CD instead of an individual one, all of your money would be federally insured. That said, there are both advantages and disadvantages to opening a joint bank account versus an individual account.
What to keep in mind when opening a CD
There are many places to open a CD, such as brick-and-mortar banks, online banks, credit unions, or brokerage firms.
A traditional CD is the most common type of account you'll find. It offers a fixed interest rate. A fixed interest rate allows you to earn the same interest for a term — the timeframe you'll have the account open.
Some financial institutions may also offer several types of CDs with distinct features. For example, if you would like to open a CD and make additional deposits during the term, you could explore an add-on CD. Some of the best no-penalty CD rates are also notably paying high rates right now, so you might look for a no-penalty CD if you want an option that doesn't have withdrawal penalties.
Potential disadvantages of CDs
Most CDs — with the exception of select accounts like no-penalty CDs and brokered CDs — have early withdrawal penalties. An early withdrawal penalty is a charge from a bank when you take out money before the end of a CD term.
In addition to early withdrawal penalties, you should be mindful of inflation risk when opening a CD.
"If you want to put something in a CD for six months or up to two years — a relatively short period of time — knowing that you're going to get some interest, that can be great. But the longer you hold cash in a CD, the longer you run the risk that inflation might outpace the amount that you earn from holding it," explains Mawuli.
Overall, it's important to factor in the timeframe and purpose of your account when deciding where to put your money. You might consider investing rather than saving if you want higher returns for a long-term goal and are comfortable taking more risk. If you have a short-term goal or would like to grow your money in a low-risk place, CDs or another type of savings account may fit your situation.
Are CDs at online banks safe?
Online banks are as safe as brick-and-mortar financial institutions, as long as they have FDIC or NCUA insurance. Online bank accounts are insured for the same amount as brick-and-mortar ones. Hence, a CD at an online bank is still federally insured for up to $250,000 per depositor, per account category.
Are CDs at brokerage firms safe?
Brokered CDs are generally also safe. Brokerage firms typically buy a high number of CDs from a variety of federally insured financial institutions. Each institution still offers the standard federal insurance amount per depositor, per category.
Some examples of brokerage firms that have brokered CDs include Edward Jones and Charles Schwab.
Brokered CDs have a few distinct features that are different from traditional CDs that you should be aware of, though. For example, brokered CDs do not compound interest. Traditional CDs often compound interest daily, monthly, or quarterly.
Some brokered CDs have a callable feature, which means the bank could call back the account before the term ends. This means you may not earn as much money on the account as you anticipated.
"The reason a bank might call a CD early is because interest rates are going down, and they don't want to pay those high interest rates that they promised you. They're going to call your CD, and that way, they stop paying those high interest payments to you," explains Scott.
Another thing to keep in mind is that brokered CDs often do not have early withdrawal penalties like traditional CDs. Instead, you'll sell CDs on a secondary market. Usually, there's a trading fee involved. You also could potentially lose money on a brokered CD if you sell it on the second market before the term ends and the market conditions aren't favorable.
CD safety FAQs
Do CDs have any risk?
CDs are a low-risk savings option because bank failures rarely occur. The FDIC or NCUA also protects insured deposits if a bank or credit union collapses, so up to $250,000 per account owner, per account category will remain secure.
Are CDs safe in a market crash?
Yes, CDs are generally still safe even if a stock market crash occurs. CDs are a type of bank account. Many accounts offer a set rate of return for a specific timeframe that won't fluctuate.
Are CDs safe if a bank collapses?
If a bank fails, the FDIC will make sure your insured deposits are safe. Usually, one of two things happens — either your money will be moved into the new bank, or the FDIC will send a check for the amount of your insured deposits.
Are CDs safer than stocks?
Yes, CDs are safer than stocks. CDs are considered a low-risk saving option since you're earning guaranteed fixed returns in a bank account for a set time. CDs generally offer lower returns than stocks in the long term, though.