FDIC Protection for Brokerage CDs

Many people choose to invest in certificates of deposit because they are usually insured by the FDIC. There are many types of CDs you may choose to purchase, including brokerage CDs, all of which should be protected by insurance. There are some circumstances when this is not the case, however, so it’s important to be sure your investment is fully covered.

Brokerage CD FDIC Protection

Current FDIC insurance rules stipulate that an investor’s deposits at an FDIC-insured financial institution are covered up to $250,000 per depositor, per institution (not account) until 2014. In 2014, the insurance limit will drop back down to $100,000.

This means if you have a combination of checking, savings, money market accounts or CD’s at any one bank or similar financial institution, the sum of all the accounts’ values must total $250,000 or less to be completely protected.

However, what if you own one or more brokered CDs? You purchase a brokered CD from a person affiliated with a particular brokerage firm, rather than directly from an issuing bank. This means it’s imperative that you know where your brokerage CD is held.

FDIC Recommendations for Protecting a Brokerage CD

There are many things to look for when shopping for a brokerage CD, including whether it will be fully insured by the FDIC. The FDIC lists several precautions you can take to be sure your brokered CD is fully insured, along with the rest of your deposit accounts.

• Know where your CD is held. When you purchase a CD from a broker, you may not be aware of what bank has actually issued it. Imagine you purchase a brokered CD without knowing it will be held by your personal bank. Suddenly, all of your accounts that used to be well below $250,000 are now vulnerable with the addition of the brokerage CD. Be sure you are aware of which bank issues your brokerage CD.

• Obtain exact information. When you purchase the brokerage CD, insist your broker provide you with the exact name of the account and all supporting documentation reflects you as the beneficiary. Otherwise, in the event the bank fails, the FDIC would treat the broker as the owner of the CD and insure it only to a total of $250,000, even if funds of many different depositors were pooling into one CD totaling more than that.