The way you title a certificate of deposit affects your federal insurance coverage if your savings institution fails. To ensure coverage, choose a bank belonging to the Federal Deposit Insurance Corporation or a credit union belonging to the National Credit Union Administration. The basic insurance for one account owner is $250,000, but you can get additional coverage by titling accounts in different ways. CDs bought through a broker present special difficulties with titling.
Single Account Title
The Federal Deposit Insurance Corporation and National Credit Union Association offer essentially the same coverage for banks and credit unions. The basic coverage is $250,000 for all your single accounts in any one bank or credit union, including different branches of the same bank. Single accounts are those titled in your name only, without any co-owner or beneficiary. The government combines all your CDs together with your other single accounts to compute your insurance limit in any one institution.
Joint or Beneficiary Accounts
Accounts titled in different categories in the same bank give you additional coverage, over and beyond the $250,000 for single accounts. If you open a joint CD account titled with your name plus one or more co-owners, the government insures $250,000 in your name plus $250,000 for each co-owner. Similarly, If you title CDs or other accounts in your name with beneficiaries, you receive $250,000 in coverage for each beneficiary, beyond your coverage for single or joint accounts. The government combines all your accounts at the same institution in the same title category for insurance purposes.
You receive $250,000 in coverage for all your CD accounts titled as retirement plans, in addition to your non-retirement account coverage. Most common types of retirement plans qualify for this coverage, including self-directed defined-contribution plans, self-directed Keogh plans, individual retirement accounts, simplified employee pension, or SEP, IRAs, and savings incentive match plans for employees, or SIMPLE, IRAs. However, the government combines all these types of plans to compute your insurance limit for retirement plans in any one bank.
The FDIC and NCUA also offer separate $250,000 coverage of CDs and other accounts titled as revocable trust accounts, subject to restrictions. Because this is a complex topic, the FDIC recommends getting professional legal or financial advice in titling these accounts. Two other categories of CDs that may qualify for $250,000 additional insurance are employee benefit plans and business accounts, also subject to rules and restrictions.
Some investors buy CDs through a broker instead of directly from the bank, making titling more complicated. The U.S. Securities and Exchange Commission recommends dealing with a broker you trust. Get the name of the institution that issues your CD, and make sure it has federal insurance. A brokered CD titled in your own name protects you, but any other accounts you have at the same bank reduce your coverage. Brokers often combine several investors' money in one CD. In this case, the broker must maintain careful records of your deposit to safeguard your coverage.