What is a CD and why you should care.
A bank certificate of deposit (CD) typically offers a higher rate of interest than a regular savings account. In exchange, you must keep the money on deposit for as little as 7 days or longer than 5 years, depending on the CD. Whether you are considering buying a simple, fixed-rate CD or one with more complex features from a bank or a broker, here are three tips for selecting the right CD for your needs.
Be sure you are investing with an FDIC-insured bank
Make sure you are purchasing a “deposit” product issued by a federally insured institution. Not all companies with bank-sounding names are actually banks that are insured by the FDIC. To verify that an institution is FDIC-insured, click on “Find Your Bank” at www.fdic.gov or contact the FDIC’s toll-free Call Center at 1-877-275-3342.
What about CD brokers?
If you purchase a CD from a third-party broker instead of directly from the bank, you will have to rely on the broker to make your deposit and acquire the CD. “Remember that the FDIC does not license or register deposit brokers and that an unscrupulous broker could mislead or defraud its customers,” explains Martin Becker, an FDIC Senior Deposit Insurance Specialist. “If the broker fails to place your funds into a CD at an FDIC-insured bank, your money will not be insured by the FDIC. Also, be sure to review the account agreement and other supporting documentation to confirm you are in fact purchasing a CD and not a financial product that is not insured by the FDIC.”
What about FDIC insurance coverage?
If you purchase a CD issued by an institution where you already have deposits, make sure that all of your funds are insured. If the new CD combined with your existing deposits at the same bank would put your total bank deposits above the $250,000 FDIC basic insurance limit, you may need to take steps to make sure all of your funds are fully protected. At Peoples Bank we have a CDARS program that lets depositors access millions of FDIC insurance but retain just one relationship with Peoples Bank. More information about CDARS.
Want to know more? Go here to read the entire article on this subject on the FDIC website.