If You Open A CD Account, Can You Ever Lose The Money You Deposited? (2024)

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A CD, or certificate of deposit, is a type of savings account that offers a guaranteed rate of return in exchange for you locking your money up for a while. When you put money into a CD account, you lend the amount you’ve deposited to a financial institution for a set period known as the CD term, which can range from a few weeks to ten years. In exchange, the financial institution pays you a fixed interest rate that’s often higher than what you’d earn with a savings account. Once your CD matures, you’ll get your original investment back plus the interest accrued.

Unlike stocks or cryptocurrencies, which present a risk of loss, CDs are generally considered safe investment vehicles that do not lose money. In some scenarios, though, you could risk losing interest or even a portion of your initial investment in a CD.

Can You Lose Money in a CD?

Because CDs offer guaranteed interest, you typically do not lose money. However, the following risks could still cause you to lose a portion of your investment or your CD to lose value.

Early Withdrawal Penalties

The most common way people lose money through a CD account is by withdrawing their funds before the term ends. When you take money out of your CD account before the maturity date, you’ll typically have to pay an early withdrawal penalty. The fee is usually equal to a portion of your interest earned, so you usually won’t lose money from your initial investment. For term lengths less than 12 months, it’s common to see early withdrawal penalties equal to 90 days’ interest on the amount you take out. For term lengths longer than 12 months, the penalty amount could be 180 days’ worth of interest or more.


Inflation can erode your money’s purchasing power if your CD’s interest rate is lower than the inflation rate. Let’s say you invest $10,000 in a CD with a 2.00% APY, but the inflation rate is 3%. By the end of the first year, the CD will have accrued $200 in interest, bringing your total savings to $10,200. However, because the overall price of goods and services has risen by 3% due to inflation, you’ll need $10,300 to purchase the same basket of goods that $10,000 could buy in the previous year.

While you didn’t lose money in a CD, the money you invested did lose value.

Interest Rate Fluctuations

Interest rate fluctuations can’t cause you to lose money, but they can present an opportunity cost. This is a risk that occurs when you invest money in a vehicle that doesn’t offer much liquidity and a more lucrative investment opportunity comes up that you’re unable to take advantage of.

Let’s say you deposit $5,000 into a one-year CD account with 3.50% APY. Shortly after locking in your funds, the Fed raises interest rates, and the APY for the same account jumps to 4.50%. Because taking your money out early means dealing with penalty fees, you’re stuck with the lower 3.50% APY. Bump-up CDs, which allow you to raise your rate at least once during your CD term, can mitigate this risk.

Your Deposits Exceed the FDIC Insurance Limit

The FDIC, or Federal Deposit Insurance Corporation, insures up to $250,000 total per person, per account type for every individual who deposits money in an FDIC-insured bank. The NCUA offers the same insurance for credit unions. However, if you deposit more than $250,000, you may not get the portion of your deposit that exceeds this limit back in the unlikely case that your bank fails.

Can a Brokered CD Lose Money?

Yes. A brokered CD is a certificate of deposit you purchase through a brokerage firm or broker instead of a bank or credit union. While brokered CDs offer more flexibility than regular CDs—as you can sell them on the secondary market whenever you like without incurring penalties—you could lose money if they’re sold at a lower price than their face value. Also, some brokered CDs are callable CDs, which means the issuer could terminate them before maturity and cause you to lose out on potential earnings.

How To Reduce the Risk of Losing Money on a CD

While CDs don’t usually lose money, you can minimize risk by taking the following actions.

  • Create a CD ladder. The CD ladder strategy involves investing in multiple CDs with different maturity dates—for example, spreading a $5,000 deposit across one-, two-, three-, four- and five-year CDs. This way, you can avoid losing out on potential earnings due to rising interest rates while still being able access to some funds once each year.
  • Make sure your deposits are insured. While most banks are FDIC-insured and most credit unions are NCUA-insured, it’s always a good idea to double-check. You can do so by using the FDIC’s Bank Find tool or the NCUA’s Credit Union Locator. If you plan on depositing more than $250,000, there are some ways to insure excess deposits and avoid this potential loss.
  • Leave funds in the CD account until maturity. Before temporarily locking your money away in a CD account, make sure you can afford to be without it for the entire term length. Early withdrawal penalties can be hefty, so avoid taking out the funds prematurely. If you’re unsure about committing to regular CDs, consider looking into no-penalty CDs that offer more flexibility.

All investments carry some degree of risk, but CDs are as low-risk as they come. That said, inflation, early withdrawal penalties and interest rate fluctuations can all eat into your CD’s value. Making sure you select the right CD term for your needs and seeking out the best CD rates for that term can help you maximize your investment.

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If You Open A CD Account, Can You Ever Lose The Money You Deposited? (2024)


If You Open A CD Account, Can You Ever Lose The Money You Deposited? ›

Standard CDs are insured by the Federal Deposit Insurance Corp. (FDIC) for up to $250,000, so they cannot lose money. However, some CDs that are not FDIC-insured may carry greater risk, and there may be risks that come from rising inflation or interest rates.

Can you ever lose money on a CD? ›

The risk of having a CD is very low. Unlike how the stock market or a Roth IRA can lose money, you typically cannot lose money in a CD. There is actually no risk the account owner incurs unless you withdraw money before the account reaches maturity.

Is my money safe in a CD account? ›

Safety. Along with savings accounts and money market accounts, CDs are some of the safest places to keep your money. That's because money held in a CD is insured. So long as you purchase your CD account through an FDIC-insured bank, you're covered in case the bank shuts down or goes out of business.

How much do you lose if you take money out of a CD? ›

Federal law sets a minimum penalty on early withdrawals from CDs, but there is no maximum penalty. If you withdraw money within the first six days after deposit, the penalty is at least seven days' simple interest.

What happens to my CD if the bank defaults? ›

The FDIC Covers CDs in the Event of Bank Failure

But the recent regional banking turmoil may have you concerned about your investment in case of a bank failure. CDs are treated by the FDIC like other bank accounts and will be insured up to $250,000 if the bank is a member of the agency.

Are CDs safe if government defaults? ›

In most cases yes, up to a point. CDs are typically insured up to the FDIC limit, though it is possible to buy jumbo CDs above that level. But you could also invest in a US Treasury money market fund, and Treasuries are backed by the full faith and credit of the US government without limits.

Are CDs safe if the market crashes? ›

Market Crashes and CDs

Even if the market crashes, your CD is still safe. Your interest rate won't change, and your money is still insured. But, keep an eye on interest rates. After your CD term ends, you might find that new CDs have lower rates if the economy is still struggling.

Are CDs safe if the bank fails? ›

The short answer is yes. Like other bank accounts, CDs are federally insured at financial institutions that are members of a federal deposit insurance agency. If a member bank or credit union fails, you're guaranteed to receive your money back, up to $250,000, by the full faith and credit of the U.S. government.

Why should you put $5000 in a 6 month CD now? ›

While longer-term CDs may tie up your funds for years, a 6-month CD allows you to access your money relatively quickly. If you suddenly need your $5,000 for an emergency or a more lucrative investment opportunity arises, you won't have to wait years to access your funds without incurring hefty penalties.

How much does a $10,000 CD make in a year? ›

Earnings on a $10,000 CD Over Different Terms
Term LengthAverage APYInterest earned on $10,000 at maturity
1 year1.81%$181
2 years1.54%$310.37
3 years1.41%$428.99
4 years1.32%$538.55
1 more row
Apr 24, 2024

What is the biggest negative of putting your money in a CD? ›

One major drawback of a CD is that account holders can't easily access their money if an unanticipated need arises. They typically have to pay a penalty for early withdrawals, which can eat up interest and can even result in the loss of principal.

Do you pay taxes on CDs? ›

Key takeaways. Interest earned on CDs is considered taxable income by the IRS, regardless of whether the money is received in cash or reinvested. Interest earned on CDs with terms longer than one year must be reported and taxed every year, even if the CD cannot be cashed in until maturity.

Why am I losing money in a CD account? ›

Many CDs have early withdrawal penalties equal to several months of interest. You could lose money in a CD if you withdraw before you've earned enough interest to cover the penalty.

Can banks seize your money if the economy fails? ›

Banking regulation has changed over the last 100 years to provide more protection to consumers. You can keep money in a bank account during a recession and it will be safe through FDIC and NCUA deposit insurance. Up to $250,000 is secure in individual bank accounts and $500,000 is safe in joint bank accounts.

What are the cons of CDs? ›

The biggest disadvantage of investing in CDs is that, unlike a traditional savings account, CDs aren't flexible. Once you decide on the term of the CD, whether it's six months or 18 months, it can't be changed after the account is funded.

How much will a $500 CD make in 5 years? ›

This CD will earn $108.33 on $500 over five years, which means your deposit will grow by 21.7%.

What is the biggest negative of investing your money in a CD? ›

The biggest disadvantage of investing in CDs is that, unlike a traditional savings account, CDs aren't flexible. Once you decide on the term of the CD, whether it's six months or 18 months, it can't be changed after the account is funded.

How long should you keep money in a CD? ›

Traditionally, in your typical ladder, five-year CDs have a higher yield than one-year CDs. But these days, you're likely to see a CD with a term of around six months to 18 months will likely have the highest yield in your ladder.

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