Uninsured CDs

Many investors working on diversifying their portfolios choose to move some of their money into certificates of deposit (CDs). CDs are typically low risk, timed investment opportunities. You can purchase a CD for a predetermined period of time during which your principal is safe, there is guaranteed rate of return and protection from the FDIC. But not all CDs are created equal and not all CDs are insured. To protect yourself, make sure you know the terms of the CDs, and make sure you’re getting the best CD rates available.

Uninsured Certificate of Deposit Basics

If you are considering investing in a CD you should know the distinct difference between putting your money in an uninsured bank or credit union versus their insured counterparts. If the FDIC or NCUA does not back the bank you are interested in, the interest rates offered on CDs tend to be higher than those at insured institution. However, not having that insurance backing your financial institution means that if your bank or credit union goes under, the money you invested would not be replenished by the federal agencies. The reason why an uninsured bank or credit union may offer you a greater return on your investment is because you will be taking a greater risk with your money at an uninsured institution. In this case, the best CD rates will certainly come with more risk.

Bank or Credit Union CDs are Less Risky

CDs from insured banks or credit unions may have lower interest rates, but the chance of losing your investments are incredibly low. That means if you have $100,000 in a bank CD and the bank shuts its door  you will get your principal back (guaranteed up to $250,000).  Verifying whether or not your bank is FDIC insured is quite simple. You can visit the FDIC’s website and do a quick check of their database. The banks website should also have that information. A visit to your local branch will also show whether or not a bank is insured as there should be printed information on the subject displayed in different areas of the venue.

You probably work extremely hard for your money and for all the investments in your portfolio. With so many banks in trouble, why risk losing your nest egg by investing in uninsured opportunities. Of course the choice is ultimately yours, but it is important to weigh the pros and cons of uninsured certificates of deposit before investing. Are you willing to risk your money for the best CD rates? Going half and half with your investments may be the safe way to go.