Are your hard-earned bank deposits insured? Luckily for the majority of Americans, they are. The Federal Deposit Insurance Corporation (FDIC) is an independent government agency that is in charge of banking and consumer safety. The FDIC insures your bank deposits, up to a limit, in the event of a bank failure. In this blog, we are going to look at what FDIC insurance is, the limit for FDIC insurance, and how you can maximize your coverage.
What is FDIC insurance and how does it work?
FDIC insurance safeguards your money at any FDIC-insured bank in case that bank fails. The insurance covers up to $250,000 per depositor, per FDIC-insured bank, per ownership category. If you opened a savings account with $125,000 and then you made $25,000 in interest then you would be insured for $150,000. If you have more than $250,000 in deposits across several accounts in a single bank, then you are only insured for $250,000.
When was FDIC insurance created?
The FDIC was established by the Banking Act of 1933 during the Franklin D. Roosevelt administration. Before FDIC insurance was created, thousands of banks collapsed and many account holders lost a lot of money. While another bank failure is unlikely, it could still happen and you will want to know that your money is protected.
What does FDIC insurance actually cover?
The FDIC insures up to $250,000 per depositor, per institution, and per ownership category.
FDIC insurance only covers deposits at certain banks, including:
- Checking accounts
- Savings accounts
- Certificates of deposit (CDs)
- Money market deposit accounts
- Cashier’s checks
- The FDIC also insures bank deposits in some retirement accounts like IRAs and 401(k)s. (It does not insure investments.)
What isn’t covered by FDIC insurance?
FDIC insurance does not cover:
- Contents of safety deposit boxes
- Investments in stocks, bonds, or mutual funds
- Losses from investments
- Life insurance policies
- Payment providers such as Paypal and Venmo
If any of these apply to you, please talk to your financial advisor to ensure that they are protected.
Do I need to apply for FDIC insurance?
You don’t need to apply for FDIC insurance. When you open an account at a bank, you may notice the account is FDIC-insured. As long as you open an account with an FDIC-insured bank then you will be covered for up to $250,000.
Different FDIC ownership categories and the insurance limits
|FDIC Ownership Categories||Insurance Limits|
|Single accounts (owned by one person)||$250,000 per owner|
|Joint accounts (owned by more than one person)||$500,000 total ($250,000 per co-owner)|
|Bank deposits in certain retirement accounts, including IRAs||$250,000 per owner.|
|Revocable trust accounts||$250,000 per depositor per unique beneficiary.|
|Irrevocable trust accounts||$250,000 per unique beneficiary entitled to the account.|
|Corporation, partnership and unincorporated association accounts||$250,000 per corporation, partnership or unincorporated association.|
|Employee benefit plan accounts||$250,000 per plan participant entitled to the account.|
|Government accounts||$250,000 per official custodian|
What is the limit for FDIC insurance in 2023?
There is a $250,0000 FDIC insurance limit per depositor, per institution and per ownership category. Here are some examples of FDIC insurance coverage. It is important to think about your individual scenario to make sure that you are covered.
- You’re single, do your banking at two banks, and you have:
- $200,000 in a savings account at Bank 1.
- $50,000 in a checking account at Bank 1.
- $150,000 in certificates of deposit at Bank 2.
That is a total of $400,000 deposited at two banks. Therefore your money is protected because you have $250,000 at bank 1 and $150,000 at bank 2.
- You’re single, do your banking in one place, and you have:
- $200,000 in a savings account.
- $125,000 in a checking account.
- $100,000 in certificates of deposit.
That is a total of $425,000 deposited in one bank. FDIC insurance will only cover up to $250,000, therefore you would lose $175,000 if something happened to the bank. If this is your current situation, then we recommend that put at least $175,000 with another bank so that your money is protected.
- You’re married, you both do your banking at the same place and together you have:
- $500,000 in a joint savings account shared with your spouse.
- $250,000 in a certificate of deposit in just your name.
That’s a total of $750,000 deposited at one bank. All of this money is protected. You are both protected for $250,000 each for the joint account. The $250,000 in the certificate of deposit is also covered because it’s in just your name which is a different ownership category.
How can I maximize my FDIC insurance?
If you have more than $250,000, the most simple option is to have the money in multiple bank accounts at multiple banks.
You can also technically qualify for more than $250,000 in coverage if you have accounts in more than one ownership category. For example, a joint account is insured for up to $500,000 ($250,000 per co-owner). Then if each of those co-owners opens an individual checking account separately, those accounts would also have their own $250,000 coverage on top of the joint $500,000 coverage.
Another option is to set up a revocable trust. You can then name one or more beneficiaries to increase your coverage. Each beneficiary then receives $250,000 of coverage. For example, a revocable trust account with one owner and three unique beneficiaries can be insured up to $750,000. This is a slightly complicated process so it’s important to talk to your financial advisor to make sure that it has been set up correctly.
Common FDIC insurance questions
What does being FDIC insured mean?
It means that your money is held in a bank protected by the federal government. FDIC insurance only kicks in if the bank fails.
What does FDIC insured up to $250,000 mean?
It means that if your bank fails, then the FDIC will cover you for up to $250,000. If you have more than $250,000 in your individual account then that additional money will not be covered.
Are joint accounts FDIC insured to $500,000?
Yes, a joint account is insured for up to $500,000 ($250,000 per co-owner).
Is FDIC insurance unlimited?
FDIC insurance is not unlimited. There is a $250,0000 limit per depositor, per institution and per ownership category. This means that if you have over $250,000, the easiest solution to ensure that all of your money is insured is to have your money spread across various banks.
How do I know if my bank is protected by FDIC insurance?
A quick way to find out if your deposits are insured is to search for your bank on the FDIC’s BankFind tool. It is rare for banks to not have FDIC insurance but it’s important to check to make sure that you are covered.
How does the FDIC pay me back if my bank fails?
There is nothing that a depositor needs to do. When a bank fails, the FDIC gives depositors an account at another insured bank. The amount in the account would be equal to what they had in the failed bank, up to the insurance limits. If this isn’t possible, then the FDIC will issue the depositor a check. This usually happens within the next business day.
Make sure your money is protected with FDIC insurance
Over the past 80 years, the FDIC has protected people’s money and provided financial peace of mind. FDIC insurance is essentially a free way to protect your money. Check your bank account/s to make sure that you are protected and aren’t exceeding the limits for FDIC insurance. If you want help with your finances and are interested in having a comprehensive financial plan for your family, feel free to schedule a discovery call with one of our financial advisors today!
Alvin Carlos, CFP®, CFA is an investment advisor and fee-only financial planner, in Washington, D.C that works with clients across the country. He has a Master’s degree in International Relations from SAIS-Johns Hopkins. Alvin is a partner of District Capital, a financial planning firm designed to help professionals in their 30s and 40s achieve their financial goals through smart investing, reducing taxes, retirement planning, and maximizing their money. Schedule a free discovery call to learn how we can help elevate your finances.