FDIC Insured CDs
Most people realize that the Federal Deposit Insurance Corporation (FDIC) is the security most banks use to ensure that deposits at their institutions are covered should the bank fail or another disaster strike, such as a natural disaster that closes down bank operations for a significant amount of time. During Hurricane Katrina and the ensuing turmoil in the south, for instance, several certificate of deposit accounts were paid out or moved to new, operational banks through FDIC insurance on CDs.
The FDIC currently insures up to $250,000 in deposits on FDIC insured CDs. That only covers accounts which mature on or before January 1, 2013, however. So if you open a certificate of deposit with a term longer than 3 years today, it will only be covered for the old amount of $100,000, which the FDIC will revert coverage to in 2013. That applies to the account starting today, so be aware of that.
Most certificate of deposit FDIC insurance is for up to $250,000, but another thing to be aware of is that this insurance does not cover any unpaid interest on the CD. In other words, if you deposit $50,000 into a CD account and the terms state that it will not pay interest until maturity and the bank folds or otherwise claims with FDIC due to a problem, you will get back your original $50,000 deposit and no more. Interest that is paid into the account, however, becomes a “deposit” and is usually covered under FDIC rules.
It’s important to know all of this when you are opening as account as it is not often explained directly by the bank or broker issuing the CD. They usually hand you the pre-printed pamphlet on FDIC insurance on CDs and lave it at that.
Read that pamphlet and ask questions about how your account is covered as an FDIC insured CDs before you sign and deposit to open the account. Not all insurance is equal anymore and some details, like those outlined here, may affect your deposit.
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Tags: certificate of deposit FDIC, FDIC insurance on CDs, FDIC insured CDs
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