Takeaways
- Certificates of deposit (CDs) are investments that offer a fixed interest and term.
- The NCUA and FDIC insure deposits in credit unions and banks up to $250,000.
- CD ladders are staggered CD investments that pay regular interest payments.
- Investors use CDs to diversify their investment portfolios or build fixed-income strategies.
- CDs are used by retail investors, regular savers, and institutional investors to earn interest income with a low-risk profile.
Certificates of deposit (CDs) offer a reliable and predictable option to grow your savings with minimal risk. But one of the most common questions savers ask is: How much money should I put into CDs? The answer depends on your financial goals and the role you want CDs to play in your portfolio.
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What Is a CD?
A certificate of deposit (CD) is a fixed-term savings product that banks and credit unions offer. When you open a CD, you agree to deposit a specific amount of money for a set period, called the term. During this period, your money earns interest at a fixed rate. You can withdraw your original deposit and the interest earned when the term matures.
CDs typically offer higher interest rates than regular savings accounts because you are committing to leaving your money untouched for the term length. However, withdrawing your funds early can result in penalties, which can reduce or eliminate the interest you earned.
CDs Are Best For
CDs are ideal when you want stability and guaranteed returns. Here are three common ways to use CDs effectively:
- Longer-Term Slush Funds: If you have extra money you do not immediately need, a CD can be the perfect place to safely grow your cash when you are ready to use it, like for a down payment on a home. Read more about slush funds.
- Medium-Term Savings: Planning a significant life event, like a wedding, home renovation, or a vacation? CDs with terms from 12 months to 3 years can help you save while earning more interest than a regular savings account. Read more about the average cost of a wedding.
- Diversifying Your Investments: CDs can provide a low-risk component in your diversified portfolio. Putting money into CDs can balance higher-risk investments like growth stocks, Bitcoin, or mutual funds.
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What Are CD Deposit Minimums?
Most CDs have a minimum deposit requirement — the smallest amount of money you can invest to open the account. This minimum varies by institution but typically ranges from $500 to $2,500. Some credit unions, such as Alliant, offer jumbo CDs, which require high minimum deposits —often $75,000 or more —but provide higher interest rates in return.[1]
Before deciding how much to invest in a CD, check the minimum requirements at your chosen bank or credit union and ensure you are comfortable leaving that amount untouched for the CD's term.
Monitor the Federally Insured Amount
Like other deposit accounts, CDs are insured by the Federal Deposit Insurance Corporation (FDIC) for banks or the National Credit Union Administration (NCUA) for credit unions, up to $250,000 per depositor, per institution, per ownership category. [2][3] This means that your deposits are protected, even if the bank fails, as long as you stay within these limits.
5 Ways to Keep Your Funds Insured
To maximize your safety and ensure all your CD investments are federally insured, consider the following strategies:
1. Stay Under the Minimum: Keep your total deposits below $250,000 per ownership category at any bank. If you have a joint account, you may be insured up to $500,000 ($250,000 per co-owner).
2. Open CDs at Different Banks: Spreading your CDs across multiple banks or credit unions allows you to stay under the insured limit at each institution, protecting larger amounts.
3. Have Different Ownership Categories: You can increase your insured coverage by using different ownership categories, such as individual accounts, joint accounts, trust accounts, or retirement accounts. Each category is insured separately up to the limit.
4. Consider Brokered CDs: Brokered CDs are offered through investment firms and can help you spread large sums across multiple banks while staying within insurance limits. Your broker helps manage the allocation and ensures each CD is adequately insured.
5. Add Insurance: Some private institutions offer additional insurance on deposits above FDIC or NCUA limits, though this is less common and may come with extra fees or stipulations.
How CDs Fit into Your Investment Portfolio
CDs can play an essential role in a balanced investment portfolio, especially if you are looking for stability and predictable returns.
- Preservation of Capital - CDs protect your principal while still earning interest, making them ideal for conservative investors or retirees.
- Guaranteed Returns - Interest payments can provide a reliable source of passive income, especially for those who rely on steady returns.
- Diversification - CDs reduce overall portfolio risk by offsetting more volatile investments like stocks or bonds. Read more about diversification.
Smart Summary
CDs offer a secure and predictable way to grow your savings, but determining how much to invest depends on your specific goals. Whatever your savings needs, check CD minimums and ensure you do not exceed the $250,000 FDIC or NCUA insurance cap at any one institution. CDs can offer a low-risk investment option to help balance out your portfolio.
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(1) Alliant Credit Union. Certificate Rates. Last Accessed April 24, 2025.
(2) Federal Deposit Insurance Corporation. Deposit Insurance FAQs. Last Accessed April 24, 2025.
(3) National Credit Union Administration. Share Insurance Coverage. Last Accessed April 24, 2025.
