Recently I advised someone to put some money into a CD because it's guaranteed and I got a response somewhere along the lines of "the banks are very unstable, they can go out of business" but I would counter that "with FDIC, you are insured up to $100,000 / bank" and I would be told that FDIC is very shaky insecure right now and they may not pay if things go sour.

I just dusted it off thinking it's nonsense, but once again today I heard someone else say the same thing.

Is there any truth to this? If FDIC fails to pay everyone that felt they were insured... I can see many of us losing faith in our government or the word "insurance" will have no value.

With a CD you are 100% safe. if the bank goes under the worst that can happen is that your funds are frozen for a while during the process of FDIC paying you. True FDIC doesn't have enough funds to cover many banks going under at once but that's why the government just made a huge recent bailout and they'll be increasing funds in FDIC as well as they could simply print more money if needed to cover FDIC accounts. Bottom line - a CD is one of the least risky places you can put your money. The worst risk with a CD is earning an interest rate less than inflation. Look into government and corporate bonds (of safe, stable companies like Microsoft, Coke, 3M, etc not GM, Ford etc. Please note this is not official investment advice and you should talk to your investment adviser / accountant / tax professional, but I've been doing a lot of research in this area lately and I hope I've been some help! :)

To clarify, 100% safe up to $100,000 per institution in with you have money.

Sounds good and now it looks like we're safe up to $250k.