Keeping Your Money Safe: Guide to FDIC Coverage Limits

FDIC Insurance Limits. What is FDIC and how does it protect you? Learn how much of your money is safe in the bank.
By Rebecca Lake

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FDIC Insurance Banking ATM

FDIC insurance is designed to protect your bank accounts in the rare event that a bank failure occurs.

The Federal Deposit Insurance Corporation (FDIC) offers insurance to protect consumers. Since it's inception in 1934, the FDIC has never failed to cover an insured deposit when a bank went bust.

It's surprisingly simple to check if a bank is insured by the FDIC, but it's important to understand what the FDIC insurance limit is and how it applies to your deposit accounts.

To avoid any uncertainty about whether your bank deposits are protected, learn more about the role of the FDIC and its limits.

What Is FDIC Insurance?

The FDIC is an independent agency of the U.S. government. Its job is to protect consumers against financial losses if an FDIC-insured bank fails.

FDIC insurance is something you enjoy automatically if you belong to a member FDIC bank. There's nothing you need to do to enroll in this insurance coverage, and it costs you nothing.

Should a bank failure occur and you have deposits covered by FDIC insurance limits, there are two ways to get your money returned to. Whenever possible, the FDIC will attempt to arrange the sale of a failed bank to another financial institution.

In that scenario, your accounts would be moved to the new bank and you'd be a customer of that bank going forward. If the sale of a failed bank is not possible, you're eligible to receive the amount of money you had on deposit at your original bank, up to FDIC limits.

How to Tell if a Bank Is Covered by FDIC Insurance

All FDIC-member banks must display the official FDIC sign at each teller window and on their websites. But the FDIC has a bank find tool that allows you to search for whether a given bank has FDIC deposit insurance.

Look for this image to confirm FDIC insurance:

FDIC Official Teller

FDIC insurance rules and limits apply to a number of different types of deposit accounts. There are, however, some exclusions as to what qualifies for insured deposits. Here's a comparison of what the FDIC covers and what it doesn't.

Which Accounts Are Covered by FDIC Insurance?

Protected deposit products

FDIC insurance applies to a specific range of deposit accounts, including:

  • Checking accounts
  • Savings accounts
  • Negotiable Order of Withdrawal (NOW) accounts
  • Money market accounts (MMAs)
  • Certificates of deposit (CDs)

Most of these are likely familiar to you. For instance, you may have a checking and savings account at your current bank, or have past experience saving money in a money market account or CD account.

A Negotiable Order of Withdrawal or NOW account is something you may not have heard of, however. A NOW account is essentially another way of referring to an interest-bearing checking account. The main difference between a NOW account and any other type of checking account is that you can't automatically withdraw on demand. Legally, banks have the right to request seven days' written notice, though they may not enforce this rule.

Other bank items that are covered by FDIC limits

In addition to those deposit accounts, the FDIC also offers insurance coverage for:

  • Cashier's checks
  • Money orders
  • Traveler's checks
  • Accrued interest and other liabilities

There are no special rules you have to meet to ensure that you're covered. As long as the institution holding these deposits is FDIC-insured, so are the deposits. In addition, many brokerages offer FDIC-insured CDs to their customers.

Which Accounts Do Not Have FDIC Insurance Coverage?

The FDIC insurance limit protecting deposits when banks fail doesn't offer blanket coverage. Assets from failed banks or other financial institutions that wouldn't be covered include:

  • Annuities
  • Stocks
  • Bonds
  • Life insurance policies
  • Mutual funds
  • Municipal securities (such as municipal bonds)
  • Safe deposit boxes and their contents
  • U.S. Treasury bills, bonds or notes

There is an upside, however. Any U.S. Treasury bills, bonds or notes you own are backed by the full faith and credit of the U.S. government. Assets held in a brokerage account at a failed brokerage may also be covered by the Securities Investor Protection Corporation. Keep in mind, however, that SIPC insurance only protects you if the brokerage fails, not if one or more of your investments underperforms.

How Much Is Covered Under FDIC Insurance Limits?

It is critical to know how far FDIC limits extend for deposit accounts. The maximum FDIC insurance amount is $250,000 per depositor, per bank.

It's important to note that what's insured and what portion of your assets are protected is an aggregate amount, not an individual amount for each account.

So if, for example, a depositor has a $210,000 CD that has accrued $6,000 in interest, $5,000 in a checking account, and $45,000 in savings all at the same bank, the total of $266,000 isn't insured. Only $250,000 is fully covered if that bank goes under. The other $16,000 that exceeds coverage limits is vulnerable.

You're bound by the FDIC insurance limits at that bank only. If you were to hold a $250,000 CD at Bank A and another $250,000 CD at Bank B, the principal in both CDs would be fully protected by the FDIC limits.

However, this doesn't work if you have these CD accounts at different branches of the same bank.

If you have accounts at two different banks that merge, you have a six-month grace period to move accounts if the total balance exceeds FDIC coverage limits.

Does Adding Owners to an Account Increase Coverage?

Ownership rules determine how the FDIC limits apply.

For instance, if an individual has a $500,000 jumbo savings account, only the first $250,000 is covered. But if the account is put in the names of an individual and his spouse, each gets $250,000 of coverage, so the entire account balance would be FDIC insured (assuming that neither spouse has other deposits at the same bank).

A cautionary note: Both individuals must have full and equal access to the funds (even in community property states) or the FDIC will consider only one of them an owner. The coverage then drops to $250,000.

Does Opening Different Accounts at the Same Institution Increase FDIC Insurance Coverage?

Coverage can be increased by opening accounts if they're in a different ownership category. Rules and limits apply. Here's a quick rundown of how different accounts are covered:

IRAs - Individual Retirement Accounts

IRA accounts -- self-directed or traditional -- are insured to a maximum of $250,000, and that is in addition to the $250,000 on other savings.

Corporate accounts

Corporate (but not sole proprietorship) accounts are treated as separate from personal accounts and subject to their own $250,000 limits.

Trust accounts

Trust accounts may qualify for up to $250,000 in coverage per beneficiary if certain conditions are met.

Joint accounts

Joint accounts are protected for up to $250,000 at each institution. So a married couple could keep $1,000,000 liquid and insured by dividing up the money as follows: husband's single account: $250,000, wife's single account: $250,000, joint account: $500,000 ($250,000 each).

Are There Other Ways to Gain Additional FDIC Insurance Coverage?

There are. The Certificate Deposit Account Registry Service allows depositors at banks registered with the network to buy FDIC-insured CDs up to a total of $50 million. This is possible because the network takes care of spreading the funds throughout different banks.

The only drawback is that the CD rates offered may be lower than what could be obtained by shopping for rates with competing institutions. But each of your CDs would be protected if one bank fails.

Are Credit Unions FDIC-insured?

Credit unions offer their own version of FDIC coverage through the National Credit Union Administration.

The National Credit Union Share Insurance Fund covers deposit accounts at credit unions, up to $250,000. Credit union members' interest in all joint accounts combined is insured up to $250,000 as well. The Fund also offers the same coverage limit for IRA and KEOGH accounts and has the full faith and credit of the U.S. government.

How Does the FDIC Pay Depositors When a Bank Fails?

If the FDIC is able to get another institution to take over, all accounts are merely transferred to the new institution when a bank fails. For example, customers of Washington Mutual were not affected because their accounts were immediately transferred to J.P. Morgan.

If no banks can be found to take over, the FDIC cuts checks directly to the account holders, usually in a matter of days. It's the FDIC's goal to get money to consumers within two business days of a bank's failure, though this doesn't always happen.

What Coverage Mistakes Do Consumers Most Commonly Make?

In 1999, a customer found that, of his $1.4 million deposited, nearly $1 million was uninsured when his bank went under. You might be wondering how that is possible. The FDIC claims that these most common errors result in unintentionally uninsured funds.

Underinsured joint accounts

Joint accounts can go underinsured if one account holder is unaware of accounts held by the other at the same bank -- for example, if a couple has $500,000 in jointly held funds at their bank, but one spouse has another $100,000 stashed in a joint account with someone else such as a child from a previous marriage. The total of $300,000 for that spouse exceeds the limit of coverage for joint accounts.

Deposits by real estate agents, attorneys, or brokerage firms going to existing accounts

This may be less common, but it is still a possibility. For example, money can be put into escrow for real estate transactions, used to purchase CDs as part of an investment strategy, or paid as an inheritance or settlement. If those deposits go into financial institutions where you already have accounts, the balances could exceed insured limits. The result would be that you'd be left uninsured if any portion exceeds the amount of allowed coverage.

Brokerage accounts not appropriately titled

Brokerage accounts can cause other problems as well. If a broker pools an investor's funds with others but the account is not properly titled, it will only be insured up to the $250,000 limit regardless of how many actual investors own the money. The FDIC suggests that investors know what institutions their agents or representatives are using and keep track of all account balances.

How to Make the Most of Deposit Insurance Coverage

A little diligence is all it takes to keep accounts insured, and the FDIC is very forthcoming about the methods that can be used by depositors to maximize their coverage. In fact, there's even an online tool for telling depositors exactly what's insured and what isn't.

The Electronic Deposit Insurance Estimator, or EDIE online calculator, lets depositors determine the amounts that are insured, based on account-ownership type and balance. It's a simple way to ensure that you're protecting the money you're working hard to save.

Next Steps: Choose Bank Accounts That Pay You the Most Money Safely

When looking for a savings account, money market account, or another interest-bearing deposit account, there are several things to keep in mind, including FDIC insurance limits. First, check whether a bank you're thinking of opening new accounts with has member FDIC status.

Then, consider the interest rate you could as well as the fees you might pay to open a bank account there. Ideally, you can earn the best rate possible while paying the least amount in fees. Find more information on which institutions are covered under FDIC insurance and which deposit accounts offer the best interest rates by visiting the savings accounts page.

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