Who Insures a Certificate of Deposit Issued by a Bank?

Deposit accounts in banks are insured by the Federal Deposit Insurance Corporation. No depositor has ever taken a loss on their insured money due to a bank failure. Certificates of deposit are covered by FDIC insurance up to certain limits, but you may be able to keep more money in insured deposits than you realize.

Insured Deposits

A certificate of deposit is a special type of savings account. Typically, CDs offer fixed interest rates for a specific time period called the maturity. You buy the CD with a lump-sum deposit and agree to leave the money in the account until it reaches maturity. The FDIC insures your deposit accounts for up to $250,000 per depositor, per bank. CDs are included in your deposit accounts, along with regular savings accounts, checking accounts and money market deposit accounts.

Uninsured Deposits

If you buy a CD through a broker or non-bank institution, it may not be insured. Also, money market accounts offered by money market funds, rather than banks, are not covered by the FDIC. Banks offer a lot of financial products other than deposit accounts, such as safety deposit boxes, annuities, life insurance, and other market investments such as stocks and mutual funds. The money you put into these financial vehicles is not covered by FDIC insurance, but doesn't count toward the $250,000 limit on insured deposits. The bank may purchase insurance from a third-party insurer, but this is up to the bank.

Ownership Categories

The FDIC defines several ownership categories for bank deposit accounts and applies a separate $250,000 limit on insurance coverage to accounts in each ownership category. This means you can actually have more than $250,000 in one bank, and everything will be insured as long as the total in any one ownership category is under the limit. Single-owner accounts are one ownership category, and jointly owned accounts are in another category. Some retirement accounts, including IRAs, form an ownership category. There are additional categories for corporate accounts, employee benefit accounts and government accounts.

Watching the Limit

To determine whether your CDs and other deposits are within the $250,000 FDIC coverage limit, you have to add up all the accounts you own in an ownership category. Suppose you have a single-owner checking account, savings account and money market account, each with a balance of $25,000. In addition you have three CDs with a combined balance of $100,000. For the purposes of figuring out if everything is insured, find the combined total. In this example, the total is $175,000, so you are within the coverage limit. One more thing: The $250,000 limit applies to deposits in a single bank. You can have CDs in more than one bank that total more than $250,000, and everything will be insured as long as the balance in any one bank is $250,000 or less.