In the search for better returns, some Australian investors are considering uninsured certificates of deposit (CDs) as an alternative to traditional term deposits. While the lure of higher interest rates is real, the risks are substantial—especially in 2025, as regulatory changes and economic pressures reshape the savings landscape. If you’re curious about uninsured CDs, read on for a practical guide to what they are, how they differ from standard term deposits, and the risks and rewards you need to weigh before investing.

What is an Uninsured Certificate of Deposit?

An uninsured certificate of deposit is a fixed-term investment, similar to a traditional term deposit, but issued by an institution or entity not covered by the Australian government’s Financial Claims Scheme (FCS). The FCS protects deposits up to $250,000 per account holder, per bank. Uninsured CDs fall outside this safety net—meaning if the issuing institution fails, your money could be at risk.

Key features of uninsured CDs:

• Usually offered by non-bank financial institutions, credit unions not covered by FCS, or foreign banks operating in Australia.
• Potentially higher interest rates to compensate for added risk.
• No government guarantee—principal and interest are at risk if the issuer becomes insolvent.

Why Are Some Investors Considering Uninsured CDs in 2025?

With the Reserve Bank of Australia (RBA) holding rates steady in early 2025 and major banks offering relatively modest returns on traditional term deposits, investors are exploring alternatives. Uninsured CDs stand out for several reasons:

• Higher Interest Rates: Some uninsured CDs offer rates 0.5–1% above the market average for insured term deposits.
• Portfolio Diversification: Investors seeking to diversify fixed-income holdings may consider uninsured CDs alongside government bonds or managed funds.
• New Entrants: The expansion of fintech lenders and foreign banks in Australia has increased the availability of uninsured deposit products, often with aggressive promotional rates.

For example, in March 2025, several non-FCS covered lenders advertised 12-month CD rates above 5%, compared to 4.1–4.4% from the big four banks. That difference is significant for large deposits, but it comes at a price.

Risks of Uninsured Certificates of Deposit

The major risk is clear: there is no government safety net. If your uninsured CD issuer collapses, you may lose some or all of your investment. Other risks include:

• Issuer Credit Risk: Non-bank and foreign issuers may have weaker financial positions than major Australian banks.
• Liquidity Risk: Early withdrawal is often difficult or impossible, and resale markets are limited.
• Regulatory Uncertainty: The Australian Prudential Regulation Authority (APRA) clarified in February 2025 that only ADIs (Authorised Deposit-taking Institutions) are covered by FCS—leaving some investors in newer products exposed.
• Currency Risk: Some uninsured CDs are issued in foreign currencies, exposing investors to exchange rate volatility.

Real-world example: During the 2023–24 regional banking consolidation, several small lenders exited the market. While FCS protected insured deposits, holders of uninsured CDs faced delayed repayments and, in some cases, partial losses.

How to Approach Uninsured CDs in 2025

If you’re considering uninsured CDs, a cautious, research-driven approach is vital. Here’s what to check before investing:

• Issuer Status: Confirm if the institution is an ADI and covered by FCS. If not, understand why the rate is higher.
• Financial Health: Review the issuer’s credit rating, financial statements, and recent regulatory news.
• Product Terms: Scrutinise maturity dates, withdrawal policies, and whether the CD is issued in AUD or a foreign currency.
• Risk Tolerance: Only allocate a portion of your savings that you can afford to lose without jeopardising your financial security.

In 2025, APRA and ASIC have both issued warnings to retail investors about the risks of uninsured deposit products, particularly those promoted online and via fintech platforms. Regulatory bodies continue to urge investors to prioritise security over marginal returns.

Conclusion: Weighing the Trade-Offs

Uninsured certificates of deposit offer a tempting headline rate, but their lack of government protection makes them a high-risk play in today’s market. With regulatory updates in 2025 reinforcing the distinction between insured and uninsured products, it’s more important than ever to read the fine print and assess whether the extra yield is worth the risk. For most Australians, sticking to insured term deposits remains the safer bet—but for the savvy, risk-tolerant investor, uninsured CDs can play a limited role in a diversified portfolio.