Are online banking CDs safe?

Certificates of deposit (CDs) are popular products for savers looking to put money aside for the short term and earn a modest return in the meantime. When you take out a CD, you are agreeing to leave money in an account for a specified period of time without withdrawing anything. In exchange, your bank or credit union will pay you an interest rate on the money that may be higher than that offered on savings accounts.

Nowadays, you can get a CD from hundreds of providers, not only community banks, but also online banks. In general, CDs offered by online banks are just as safe as those offered by their giant counterparts, as all CD accounts are federally insured. That said, it’s always better to be wary of scams.

In this article, we’ll explain why online CD bank accounts are safe, as well as how to spot a scam if you’re in doubt about the company you’re dealing with.

Key points to remember

  • Certificates of deposit are considered very low risk investments. They offer a guaranteed return on your money and are federally insured.
  • CDs are insured and safe whether you are dealing with a large financial institution or a small online bank.
  • Online banks offer the same protections for your CD as traditional banks and sometimes even better interest rates.
  • It’s important to verify that an online bank is legit, but once you’ve done so, you can rest assured that your money is safe on an online banking CD.

CDs in online banks

First, a quick note on CD security in general. Certificates of deposit are considered to be among the safest investments available for two reasons.

First, the interest rate (i.e. yield) you will get from a CD is usually fixed and guaranteed, so there is no risk that your CD yield will be reduced or even fluctuate. . What you signed up for is what you’ll get – it’s in your deposit agreement with the bank or credit union.

Second, all investments in the CD are protected by the federal government. The Federal Deposit Insurance Corp. (FDIC) provides insurance to banks and the National Credit Union Administration (NCUA) provides insurance to credit unions. When you open a CD with an FDIC or NCUA insured institution, up to $250,000 of your funds deposited with that institution are protected by the US government should that institution fail. If you have more than $250,000 to invest, you can split it between multiple accounts to make sure everything is protected.

These guarantees apply to online banks as they apply to physical “traditional” banks. This means that CDs from online banks are just as safe as those held by regular banks.

And in fact, it can be advantageous to open a CD with an online bank rather than with a traditional bank. Indeed, it is now possible to buy CDs at more than 150 banks that accept customers nationwide, creating strong competition for online banks to offer higher interest rates on CDs. Lack of significant infrastructure and overhead allow online banks to pay higher interest rates or annual percentage yields (APY) on CDs and other types of savings. The most generous of them offer up to 1% to 2% more than you’ll earn on traditional bank accounts, a difference that can really add up with a high balance.

Online banking is now normal. About 56% of account holders do at least some of their banking on the Internet.

Avoid CD scams

All CDs offered by legitimate online banks are safe because your money is federally insured. But CDs are prone to fraud, like any other investment product. If you have doubts about the legitimacy of a company you are dealing with, you should verify that it is who it claims to be.

The SEC suggests several ways to do this:

  • If a company’s website (or promotional materials) says its CDs are FDIC insured, you can check the financial institution with the The FDIC’s BankFind tool or call 877-ASKFDIC (877-275-3342). The name of the financial institution providing the CDs must exactly match an FDIC-verified company, otherwise it could be a red flag.
  • If the website (or promotional material) says the CDs are offered by a credit union, you can verify this using the National Credit Union Administration (NCUA)”Find a credit unionor by calling the NCUA Consumer Assistance Center at 800-755-1030.
  • If a company’s website provides the name and CRD number of a broker-dealer or an employee of a broker-dealer, use FINRA BrokerCheck. This tool is used to check if the address provided in FINRA’s BrokerCheck matches the address provided by the company offering the CD.

As long as the company offering the CDs is registered in this way, your money should be safe.

Are CDs safe?

Yes. When you pull out a CD, your bank or credit union guarantees to pay you a fixed return on your money, and your money is federally insured. There’s very little chance you’ll lose money if you put it in a CD, even if your chosen bank goes bankrupt.

Are online banks safe?

Yes. While it’s always important to be on the lookout for potential scams, there are plenty of reliable and safe online banks out there. Fifty-six percent of account holders do at least some of their banking over the internet, and online banks can often offer better returns on your money than their Main Street competitors.

Why choose an online banking CD?

Online banks have less overhead than physical competitors and can therefore offer higher CD rates. And since the best CD prices available nationwide are typically three to five times higher than the industry average for each term, shopping around can really pay off.

The essential

Certificates of deposit are among the safest investments available. They offer a guaranteed return on your money and are federally insured, whether you have a CD with a large financial services institution or a small online provider.

Online banks offer the same protections for your CD as traditional banks, and sometimes better interest rates. If you suspect a scam, it’s important to check that an online bank is legit, but once you’ve done so, you can rest assured that your money is safe on an online banking CD.


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David A. Albanese