Should You Have CDs at Multiple Banks?

Certificate of deposit accounts or CDs are a good option for saving toward short- and long-term goals. Opening more than one CD account could make sense if you'd like to build a CD ladder or you're saving toward several financial goals. You could open all of your CDs at the same bank, but opening CDs at multiple banks is also an option. There are some advantages and disadvantages associated with keeping CDs at different banks.

Key Takeaways

  • A certificate of deposit is a time deposit account that allows you to save money and earn interest over a set maturity term.
  • Opening CDs at multiple banks could make sense if you're shopping for the best rates on a certificate of deposit.
  • Using multiple banks to hold CD accounts can help you to stay within FDIC coverage limits.
  • When opening CDs at different banks, it's important to consider the APY you might earn, the fees you might pay, and the maturity terms.

What Is a Certificate of Deposit (CD)?

A certificate of deposit or CD is a time deposit account offered by banks, credit unions, and other financial institutions. When you open a CD, you agree to leave your money in the account for a set period of time or maturity term. While your money is in the CD, it can earn interest. When the CD matures, you can roll your initial deposit and interest earnings into a new CD or withdraw the entire amount.

CDs can have varying maturity terms. For example, you might open a CD with a 28-day or 30-day maturity if you only need to save for a short time period. On the other hand, you might save using a CD that has a five-year or 10-year term if you want to set aside money for longer-term goals. Banks and credit unions can decide what maturity terms to offer.

Taking money out of a CD before it reaches maturity can trigger an early withdrawal penalty. This penalty may be a flat fee, though it's more common for banks and financial institutions to assess the penalty as a percentage of interest earned. The amount of the penalty is usually tied to the CD term.

CD accounts enjoy Federal Deposit Insurance Corporation protection when they're held at an FDIC member bank. Credit unions are insured through the National Credit Union Administration (NCUA). The standard FDIC coverage limit is $250,000 per depositor, per account ownership type, per financial institution. The NCUA applies similar coverage to CDs at credit unions.

Important

FDIC protection does not extend to all CDs, including those held at non-member banks, Yankee CDs, and certain brokered CD accounts.

Should You Have CDs at Multiple Banks?

There's no rule preventing you from opening CD accounts at different banks. You're also not limited as to the number of CD accounts you can have at any given time. For example, you might open a CD account at a brick-and-mortar bank, another CD at an online bank, and yet another at a credit union.

Whether you should open CDs at more than one bank can depend on your financial goals and needs. It's also important to consider whether opening multiple CDs is realistic based on how much money you have available to deposit.

Advantages of having CDs at multiple banks

There are some benefits associated with opening CDs at multiple banks. You might consider this savings strategy if you:

  • Are interested in building a CD ladder
  • Want to maximize interest earnings with CDs
  • Need CDs with varying maturity terms
  • Are worried about exceeding FDIC coverage limits

CD laddering involves opening multiple CD accounts with different maturity terms and interest rates. A CD ladder can offer flexibility because you can choose maturity terms based on your goals. It's also easier to avoid early withdrawal penalties with staggered maturities. Finally, laddering CDs with accounts at multiple banks could help you leverage higher interest rates.

Opening CDs at multiple banks can also help to ensure that all of your money is covered by FDIC protection.

For example, say you have $200,000 in your checking and savings accounts at your current bank. You sell your home for a $100,000 profit and decide to park that money in a CD. If you put all $100,000 of that into a CD at your current bank, your total deposits would equal $300,000. Assuming you're the only owner of those accounts, only $250,000 of that money would enjoy FDIC protection; the remaining $50,000 would be uninsured.

That could be a problem on the off chance that your bank fails. You could, however, stay within the coverage limits by depositing $25,000 into a CD at your current bank and opening one or more CD accounts at a different bank with the other $75,000.

Tip

The FDIC offers an online estimator tool you can use to see how much of your money is protected at each bank where you have accounts.

Disadvantages of opening CDs at Multiple Banks

Opening CDs at multiple banks may not be right for everyone. In terms of the drawbacks, here are some reasons you might think twice about opening CDs at different banks:

  • Reduced liquidity with your money
  • Potential for higher fees
  • More challenging to organize and keep track

When opening CD accounts, banks and credit unions usually have a minimum deposit requirement you need to meet. For example, you might need $500 or $1,000 to open a CD. With a jumbo CD, the minimum deposit might be $10,000 or more.

Opening CDs at multiple banks means having to meet multiple minimum deposit requirements. That's not necessarily a bad thing if you have plenty of other liquid cash available in an emergency fund or other savings accounts. But if you're putting all of your cash into CDs, that restricts your liquidity.

If you need money for an unexpected expense, you may be forced to withdraw from one or more of your CDs early. That can trigger multiple early withdrawal penalties, which shrinks your interest earnings.

Aside from those considerations, having multiple CDs at various banks could make it harder to keep track of your savings. If you don't have an organized system for managing financial accounts, you may not know exactly when CDs are set to mature. That can make it harder to plan withdrawals from CD accounts.

Note

Many banks and credit unions roll CDs over automatically at maturity unless you specify that you'd like to withdraw the money.

Can You Open CDs at Multiple Banks?

You can open multiple CD accounts at different banks; there are no limits on how many CDs you can have. It's important to keep in mind, however, that you'll need to be able to meet the minimum deposit requirements for each CD. Every bank can set different requirements for minimum CD deposits.

What Is a Good Number of CDs to Have?

The ideal number of CDs to have can depend on your financial goals. For example, you might open one CD to save money toward the purchase of a car and another CD to save money toward a down payment on a home. You could also open CD accounts to save for other goals, such as college or retirement.

What Is a CD Ladder?

A CD ladder is a savings strategy that involves opening multiple CD accounts with different maturity terms and interest rates. You can build a CD ladder using CDs at the same bank or at different banks.

The Bottom Line

Whether you should open CDs at multiple banks is a personal decision, and it's important to research CD options carefully. Take time to compare the best CD rates to see which banks or credit unions pay the most interest. Also, consider the maturity terms and minimum deposit requirements for each CD you're thinking of opening.

Article Sources

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  1. U.S. Securities and Exchange Commission. "Early Withdrawal."

  2. Federal Deposit Insurance Corporation. "Are My Deposit Accounts Insured by the FDIC?"

  3. National Credit Union Administration. "Share Insurance Fund Overview."

  4. Federal Deposit Insurance Corporation. "Your Insured Deposits."