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Can certificates of deposit (CDs) lose value?

Modified on: 2018/07/11
A:

Certificate of deposit (CD) accounts held by consumers of average means are relatively low risk and do not lose value. This is because CD accounts are FDIC insured up to $250,000. However, early withdrawal from a CD account can result in getting less money than you invest, though these losses are not considered “losing value.” CDs provide account holders yields higher than average savings and checking accounts, which is why some consumers opt to open them.

How Standard CDs Work

Typically, a consumer can open a CD account with a minimum of $1,000. CD account terms can range from seven days to 10 years, depending on the amount of money deposited in the account. Banks allow a consumer to renew or close his CD account upon its maturity. Account holders usually can withdraw the interest earned on a CD at any time without penalty, but they pay penalty fees when they withdraw part or all of the principal before the maturity date.

Brokered CDs

Investors with a higher risk tolerance can buy CDs from deposit brokers. These types of CDs are also FDIC insured, but carry risks. Principally, licensing and certification are not required for deposit brokers, so investors should exercise due diligence and research anyone claiming to be a deposit broker before opening these types of CD accounts. Once an investor establishes a brokered CD account, he may face risk locking in a favorable interest rate or gaining access to his money once the CD matures.


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