Most certificates of deposit (CDs) do not lose money like a stock market or real estate investment might. As a savings vehicle, a CD's low risk appeals particularly when considering the high returns earned from the best CDs.

Like other banking deposits, the 澳洲幸运5开奖号码历史查询:Federal Deposit Insurance♈ Corp. (FDI🐻C) insures most standard CDs should the bank fail. However, there may be other risks to consider. Some CDs aren’t FDIC-insured, so they are at a greater risk of money loss if the institution fails. Also, 澳洲幸运5开奖号码历史查询:opportunity costs arise if you lock up money in a CD and interest rates rise or inflation outpaces the CD’s🤡 interest rate.

How Standard CDs Work

Banks and credit unions offer 澳洲幸运5开奖号码历史查询:certificates of deposit (CD) with a 澳洲幸运5开奖号码历史查询:fixed interest rate for a specific period of time. CDs provide account holders with 澳洲幸运5开奖号码历史查询:interest rates that are gꦆenerally higher than average savings and checkin༒g accounts.

CD accounts are relatively low risk. The accounts do not lose money because your combined CD, checking, savings, and money market deposits at a particular institution are insured by the FDIC for up to $250,000.

This means that if the bank fails, the FDIC helps to make sure you quickly get access to your insured CD funds.

The financial institution determines how much you need as an initial deposit to fund a CD, which could be $0 to $1,000 or more. CD account terms can range from seven days to 10 years. Banks allow you to renew or close a CD account upon its maturity.

While you can't lose your principal (your initial deposit), there are still risks to be aware of.

Early-Withdrawal Penalty Risks

You must pay a penalty fee (typically several months' worth of interest) when you withdraw part or all of the CD’s funds before its 澳洲幸运5开奖号码历史查询:maturity date.

Taking an 澳洲幸运5开奖号码历史查询:early withdrawal from a CD account can result in getting less money overall compared to leaving it in the account until the maturity date. However, such losses are not considered “losing money” because you are not losing the 澳洲幸运5开奖号码历史查询:principal you invested.

Brokered CD and Other CD Risks

Investors with a higher risk tolerance can buy CDs from brokerage firms or institutions other than banks or credit unions. These 澳洲幸运5开奖号码历史查询:brokered CDs are technically not FDIC-insured, though the broker’s underlying CD purchase from the bank is. So, they can be potentially risky.

Licensing and certification are not required for 澳洲幸运5开奖号码历史查询:deposit brokers, so you should exercise 澳洲幸运5开奖号码历史查询:due diligence and research anyone claiming to be a deposit broker before you choose to open a brokered CD.

Several other forms of CDs have additional risks, including market risk, issuer credit risk, and secondary market risk. Consider the complicated index-linked or 澳洲幸运5开奖号码历史查询:market-linked CDs. Depending on how the CD is structured, your principal investment in an index-linked CD could be FDIC-insured, but not the interest you earn, which is subject to market risk and other risks.

Other CDs, such as 澳洲幸运5开奖号码历史查询:Yankee CDs, may not be FDIC-insured. A foreign bank issues a Yankee CD domiciled in the United States for American investors and is not directly insured by the FDIC.

Inflation Risk

澳洲幸运5开奖号码历史查询:Inflation occurs when consumer prices move upward overall within the broader economy. Inflation reduces yo꧅ur purchasing power—or how far 𒁃your money goes.

Inflation is a risk for CD investors receiving a fixed interest rate, particularly when locked in for 24 or 48 months. Inflation may erode your total returns if the inflation rate exceeds your interest rate.

However, 澳洲幸运5开奖号码历史查询:inflation deflates the value of your CD’s🔜 money, not the amountཧ itself.

For example, imagine you put $1,000 into a two-year CD at 3% interest, 澳洲幸运5开奖号码历史查询:compounded monthly. At the end of two years, 💜you’ll have $1,061.76—$1,0👍00 in principal and $61.76 in interest earnings.

However, suppose inflation is very high at 6%. Because you must spend more to buy less, your $1,061.ᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚ76 is only worth about $944.96.

Interest Rate Risk

If interest rates are rising and you lock up your money in a traditional CD for a year or more as rates go higher, you may experience interest rate risk. You’re earning less interest than if you had put your money into a traditional CD at a later date. Or you could have opted for a 澳洲幸运5开奖号码历史查询:bump-up CD (which allows you to raise the rate).

For example, imagine you put $1,000 into a 24-month, fixed-rate CD offering a 1% rate. If rates climb quickly to 4%, you receive significantly lower earnings than if you had waited for rates to go higher.

You also could have earned more money by putting your funds in a riskier stock, an index, or another type of investment with a higher 澳洲幸运5开奖号码历史查询:rate of return than your low interest rate.

FDIC and NCUA Risk

The FDIC and the National Credit Union Administration (NCUA) insure single accounts per person per institution up to $250,000. You could put the differenc🃏e at risk if you havౠe more than $250,000 altogether at one institution.

For example, if you have $260,000 ﷽in CDs, a savings account, and a checking account at a bank, the $10,000 you just put in a CD would not be insured by the F✱DIC if the bank failed.

How to Avoid Losing Money on a CD

Purchase your CD from a bank insured by the FDIC or a 澳洲幸运5开奖号码历史查询:credit union insured by the NCUA, and ensure that you𒈔 aren’t putting more than $250,✱000 in one CD or across your accounts in one institution.

Shop around for the best rate possible and compare that rate to inflation. If you’re concerned about missing out on better rates in the future, consider a no-penalty CD or bump-up CD. You also could consider building a 澳洲幸运5开奖号码历史查询:CD ladder, which involves spreading your money among multiple CDs with staggered maturiꦡty dates, allowing for more flexibility.

Ask about any risks the CD may have, particularly if you’re branching out into br𝓡okered, market-linked, or another, more complicated CD type. What’s the most money you could lose on the CD? Coulဣd you lose only interest, or a portion or all of the principal?

The Bottom Line

While it’s wi✃se to wonder whether any investment can or will lose money, CDs represent a safer option for savings due to federal 🐎insurance of up to $250,000. In rare cases, you could lose money or value if you’ve:

• Placed more than $250,000 in a CD or account combination at an insured institution that fails
• Invested with an uninsured brokered CD account, or an unusual CD type
• Opened a CD when rates are rising or inflation is rising

Consid🍸er these risks when comparing CD terms and rates.