Uninsured Certificate of Deposit

An uninsured certificate of deposit (CD) is a CD that is not protected by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). Because the investor bears all credit and institutional risk, uninsured CDs typically offer higher interest rates than insured CDs.

Key takeaways

• Uninsured CDs are not covered by FDIC (banks) or NCUA (credit unions).
• They usually pay higher interest to compensate for added risk.
• Examples include offshore CDs, certain brokered CDs, bull CDs, bear CDs, and Yankee CDs.
• Most traditional bank and credit union CDs remain FDIC- or NCUA-insured up to $250,000 per depositor, per institution.

How uninsured CDs work

A CD is a time deposit with a fixed term and interest rate. An uninsured CD operates the same way contractually, but if the issuing institution becomes insolvent the investor has no government guarantee to recover funds. Investors receive the higher stated yield in exchange for accepting that risk.

Common types and features

• Offshore CDs: Issued by foreign banks or held in foreign jurisdictions. They may offer much higher rates but introduce sovereign, institutional, and currency risk if denominated in non‑U.S. currency.
• Brokered CDs: Purchased through a brokerage; some may be uninsured depending on the issuer and structure.
• Bull CDs and Bear CDs: Structured CDs with returns linked to a market index. A bull CD typically guarantees a minimum return plus an additional amount if the index rises. These products can have teaser rates, long lock-ups, or variable returns tied to indexes or other assets.
• Yankee CDs: CDs issued by foreign banks in the U.S. marketplace.

Risks

• Credit/institution risk — if the issuer fails, uninsured investors can lose principal and interest.
• Currency risk — offshore CDs held in foreign currencies can lose value relative to the U.S. dollar.
• Complexity and liquidity — exotic or structured CDs may have long lock-up periods, variable payout formulas, or limited secondary-market liquidity.
• Partial coverage — some brokered CDs may be only partly insured depending on issuer and account structure.

Potential benefits

• Higher yields — the primary incentive is increased interest rates compared with insured CDs or other safe deposits.
• Structured opportunities — products linked to market indices can boost returns if the underlying performs well.

Safety considerations

• Compare the higher yield to the potential loss of principal and decide whether the risk aligns with your goals and time horizon.
• Verify the issuing institution’s stability and whether the CD is denominated in U.S. dollars.
• For most retail investors, insured bank or credit union CDs provide simpler principal protection through FDIC/NCUA coverage (up to $250,000 per depositor, per institution).

FAQs

Q: Are most CDs insured?
A: Yes — most bank and credit union CDs purchased directly from the institution are insured by the FDIC or NCUA up to applicable limits.

Q: Is it safe to invest in an uninsured CD?
A: “Safe” depends on your tolerance for credit, liquidity, and currency risk. Uninsured CDs can offer higher returns but expose you to potential loss if the issuer fails.

Q: Why choose an uninsured CD?
A: Investors seeking higher yield and willing to accept the risk of losing principal may consider uninsured CDs.

Bottom line

Uninsured CDs can be a higher-yield alternative to insured deposits, but they shift the risk of loss entirely to the investor. Understand the issuer, product structure, currency denomination, and potential lack of government protection before investing.