Nothing like the prospect of financial calamity to make today's paltry CD rates more palatable. While CD investors may not appreciate yields less than the inflation rate, they may be reveling in the risk-free aspect of CDs right now.
CDs are, of course, insured by the Federal Deposit Insurance Corporation for up to $250,000.
One question that may have occurred to more perspicacious among us: could a government default affect FDIC-insurance?
Short answer: No. The long answer is yes -- with a but.
Banks pay into the insurance fund to cover the cost of defaulting banks.
But, "if the FDIC insurance fund is depleted, that's when the government steps in. In a government default there's no government backstop. It's extremely remote but that's kind of the pre-requisite for that scenario happening," says Bankrate's senior financial analyst Greg McBride.
So, in the worst of the worst-case scenarios, in which a lengthy government default triggered an avalanche of bank failures that overwhelmed the FDIC, your CD's insurance could be affected.
Don't panic though. CDs are still a safe, solid option.
"You'd have to knock over a lot of dominoes to get from here to there. You'd have to have a prolonged default -- not one that just lasts a couple of days and then they get the deal done because financial markets are cratering," says McBride. "You'd have to have a prolonged default -- and even then, there would be so much mayhem before it ever got to that point, Congress would be compelled to raise the debt ceiling."
As always, it behooves savers to thoroughly investigate the institutions with which they entrust their money. Bankrate evaluates the financial soundness of banks, savings institutions and credit unions throughout the country and gives them a Safe and Sound rating. Check your bank's soundness.
It's an interesting hypothetical but, "it's certainly not worth worrying about. That would literally be the collapse of the entire financial system," McBride says.
Are you nervous about the debt ceiling talks? If the markets are any indication, most people are still pretty cool about the situation.
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