Don’t put $175,000 in a CD

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Dear Dr. Don,
If I open a CD in the joint name of my wife and myself in one bank, what amount is covered by the FDIC? I am thinking of opening a five-year CD with $175,000.
— DJ Depositor

Dear DJ,
Federal Deposit Insurance Corp. limits are per depositor in a bank. Your jointly titled CD would be fully insured if it’s the only account you and your wife have at the bank.

The FDIC raised its deposit insurance limits last year to $250,000. Those increased limits stay in effect through Dec. 31, 2013. The FDIC publication “Deposit Insurance Simplification Fact Sheet” provides a nice overview of the current insurance limits and EDIE The Estimator lets you input your deposit information online to confirm insurance limits.

You’ve only given me a peek into your family finances. I don’t know if $175,000 is a small portion of your family’s portfolio or every penny you own. Regardless, I think it’s a mistake to put this much money to work in a single five-year CD.

You should consider building a CD ladder to invest the money over a horizon rather than locking in the full amount in one maturity. You want to avoid the regret of being “long and wrong,” where you lock into a long-term rate only to see rates go higher over time.

The Bankrate feature “Laddering: How to build a CD ladder” will explain the basics. You’ll have to decide if you’re willing to sacrifice some yield on the shorter-term CDs to have the opportunity to reinvest that money when it matures.

To ask a question of Dr. Don, go to the “Ask the Experts” page, and select one of these topics: “Financing a home,” “Saving & investing” or “Money.” Read more Dr. Don columns for additional personal finance advice.