How FDIC Insurance Works and What It Covers (2023)

The Federal Deposit Insurance Corporation (FDIC) is an independent government agency in charge of banking and consumer safety. You're protected from losses if your FDIC-insured bank goes belly-up, assuming your funds are in qualifying accounts and fall below the maximum protected dollar limit.

How Safe Is Safe?

Although banks are safe places for your money, they do lend your money out and invest it to earn a profit. If these investments go sour, what happens to your money? When your account is FDIC insured, you are generally protected from any losses.

However, FDIC coverage has limits. Certain types of accounts are not insured, and you're only covered up to $250,000 per depositor per bank. You can get more coverage than that at a single bank, depending on a number of factors, including how your accounts are titled.

Note

If you (and any household members) have accounts under multiple registrations, you might get more than $250,000 of coverage at a single bank. Adding trust accounts or retirement accounts may expand your coverage, but verify the details before you exceed $250,000.

History of the FDIC

The FDIC was established by the Banking Act of 1933 during the Franklin D. Roosevelt administration. Leading up to that, thousands of banks collapsed, and account holders lost a significant amount of money in bank failures during the Great Depression.

(Video) Deposit Insurance Coverage Overview

FDIC insurance is backed by the full faith and credit of the U.S. government. Banks replenish the FDIC's funds by paying premiums. As of 2022, nobody has lost any FDIC-insured money in a bank failure.

Protection to Accounts

When your funds are FDIC insured, you don’t need to make a run on the bank or try to pull your insured funds out before the bank goes under. However, you will want to have liquid funds available elsewhere if the cleanup takes more than a day or so. When you have uninsured funds in a bank (because you deposited more than the $250,000 per individual depositor maximum amount), you're taking a risk.

To be sure you’re covered, find out whether your bank is FDIC insured. Most are, but it's always worth checking.

Important

Credit unions are not covered by FDIC insurance. Instead, they receive very similar government-backed protection under the National Credit Union Share Insurance Fund (NCUSIF).

What's Covered or Not Covered?

FDIC insurance only applies to deposits at covered banks, including deposited funds in the following:

(Video) The FDIC Insurance System explained | Deposit Insurance Coverage Overview

  • Checking accounts
  • Savings accounts
  • Certificates of deposit (CDs)
  • Money market accounts

FDIC insurance does not cover the following:

  • Contents of safety deposit boxes
  • Investments in stocks, bonds, or Treasury securities, such as T-notes
  • Investments in exchange-traded funds (ETFs) or money market mutual funds
  • Insurance products, such as annuities

These items aren't covered, because they aren't considered deposits—even though you might buy them through your bank. However, some of these assets might be covered by SIPC insurance.

Does FDIC Insurance Cover Fraud or Theft?

FDIC insurance also doesn't cover theft whether due to fraud, identity theft, or a bank robbery. However, banks usually have a banker's blanket bond insuring them from losses due to robbery, fire, flood, embezzlement, and other events that may cause money to vanish.

Federal law protects you from most fraud and errors in your accounts, but you have to act quickly to get full protection.

Coverage Limits

FDIC insurance is not unlimited. By having too much money in one bank or one account, you may be putting yourself at risk. The $250,000 limit is separate for each bank where you have an account. So, you can increase the FDIC insurance coverage available to you by using multiple banks or by structuring your accounts properly within a single bank.

To get more than $250,000 of coverage at one bank, spread the money out among various owners or registrations. As an example, money in your individual taxable account is separate from money in your individual retirement account (IRA). The best way to verify that your assets are comfortably under the maximum coverage limits is the FDIC's Electronic Deposit Insurance Estimator (EDIE) tool.

(Video) The Deposit Insurance Fund - How it Works

For instance, what if you have $250,000 in your individual account and $250,000 in your IRA at the same bank? While it might appear that you’re over the $250,000 limit, you may be fully covered because of how your accounts are titled. Be careful about pushing the limit, though. If you receive any interest payments that send you above $250,000, those earnings may be at risk.

How to Maximize Coverage

If you have enough money at your bank to put you at risk, then it’s worth spending the time to protect yourself or have someone else do it for you. To maximize your FDIC coverage, use one or more strategies to spread your money among different banks and different account holders.

The Certificate of Deposit Account Registry Service (CDARS)

CDARS is a network of banks that allows you to spread your money around. You open an account with one bank (possibly the same bank you already use), and if the bank participates in CDARS, your excess funds go to other FDIC-insured banks. You’ll stay below coverage limits at each bank, and you’ll see your assets on one statement. Ask your bank whether CDARS is an option.

Brokered CDs

Brokered certificates of deposit are offered by financial intermediaries such as financial advisers. By buying FDIC-insured CDs from multiple banks in your brokerage account, you can stay below coverage limits.

Titling Accounts

As mentioned earlier, you can move your excess funds to another FDIC-insured bank and have a $250,000 account at two or more banks. You can also change how your accounts are named or titled. If you exceed the coverage limits at your bank, think about titling an account in the name of each family member, using trusts, or creating a joint account with two or more people.

Note

Changing the account titling also means a change of ownership of the funds. This change could have significant tax consequences for you and the named person. It also can put you at risk of losing your assets if the circumstances of the other account holder change.

(Video) What Does FDIC-Insurance Really Cover?

Speak with an attorney, an accountant, and any affected family members before you start making account ownership changes.

Trust Accounts

Moving funds to a trust account can also increase your total limit at one bank, particularly if the trust has multiple beneficiaries. For example, you might consider establishing a revocable trust, which would allow you to be insured for up to $250,000 for each beneficiary, up to five. Coverage is available for more than five beneficiaries as well, subject to certain rules and limitations.

Mergers and FDIC Coverage

Pay attention to news about bank mergers and rescues of failing banks—especially your banks. What happens if you hold accounts at Bank A and Bank B, and the two banks merge? If there's a bank failure handled by the FDIC, insurance coverage will often treat your deposits as if they were at separate institutions for a short period. Before that period ends, though, you may want to move assets elsewhere to stay under the coverage limits.

Getting Your Money After a Failure

If your FDIC-insured bank folds, the FDIC typically gets involved and attempts to sell your bank's loan and deposit accounts to a financially sound or stable bank. If the sale goes through, your account will be moved to the buying bank, but if it doesn't happen, the FDIC may send you a check for the insured portion of your qualifying accounts. If the FDIC needs further input from you, you'll receive correspondence in the mail.

Note

In most cases, bank failures are brief and uneventful for customers. Your checks don’t bounce, you can go to the ATM and use your debit card without interruption, and your bills continue to get paid electronically. You might have to wait a few days or weeks to withdraw money, but it’s rare to have any meaningful wait.

(Video) Deposit Insurance Coverage - Personal Accounts

FAQs

How does FDIC coverage work? ›

The standard deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. The FDIC insures deposits that a person holds in one insured bank separately from any deposits that the person owns in another separately chartered insured bank.

What are 3 things not insured by FDIC? ›

What Products Are Not Insured?
  • Stock investments.
  • Bond investments.
  • Mutual funds.
  • Crypto Assets.
  • Life insurance policies.
  • Annuities.
  • Municipal securities.
  • Safe deposit boxes or their contents.
Sep 14, 2022

How much money does FDIC insurance give you protection for? ›

COVERAGE LIMITS

The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.

Should I keep more than 250 000 in one bank? ›

Open an account at a different bank

If you're using accounts that earn interest at a bank with only FDIC insurance, be sure your deposits are low enough that your balance with interest will be within the $250,000 limit. Once an account reaches the $250,000 limit, you can open another new account at another institution.

Does FDIC cover multiple accounts at the same bank? ›

The FDIC adds together all single accounts owned by the same person at the same bank and insures the total up to $250,000.

What does the FDIC do when a bank fails? ›

FDIC deposit insurance covers the balance of each depositor's account, dollar-for-dollar, up to the insurance limit, including principal and any accrued interest through the date of the insured bank's closing.

Does FDIC cover checking accounts? ›

A: Deposit products include checking accounts, savings accounts, CDs and MMDAs and are insured by the FDIC.

Is a joint account FDIC-insured up to $500 000? ›

Each co-owner of a joint account is insured up to $250,000 for the combined amount of his or her interests in all joint accounts at the same IDI. In determining a co-owner's interest in a joint account, the FDIC assumes each co-owner is an equal owner unless the IDI records clearly indicate otherwise.

What is the maximum amount of money you can have in a bank account? ›

Minimum balances aside, how much money can you have in a checking account? There is no maximum limit, but your checking account balance is only FDIC insured up to $250,000. However, as we'll cover shortly, it makes sense to put extra cash somewhere it will earn interest.

Where can I put a large sum of money? ›

Savings accounts are a safe, reliable place for a lump sum of money. Your funds will not only be safe from daily spending, but your deposits will be guaranteed by the Federal Deposit Insurance Corporation (FDIC) for bank accounts or the National Credit Union Administration (NCUA) for credit union accounts.

Are trust accounts FDIC-insured to 500000? ›

FDIC does not consider nondeposit assets in calculating deposit insurance coverage. In general, the owner of a revocable trust account is insured up to $250,000 per each primary beneficiary.

What is the FDIC limit for 2022? ›

The FDIC protects the money depositors place in insured banks in the unlikely event of an insured-bank failure. Each depositor is insured to at least $250,000 per insured bank.

How much money should you always have in your checking account? ›

The general rule of thumb is to try to have one or two months' of living expenses in it at all times. Some experts recommend adding 30 percent to this number as an extra cushion. To determine your exact living expenses, track your spending over several months, including all bills and discretionary spending.

How much cash is too much in savings? ›

In the long run, your cash loses its value and purchasing power. Another red flag that you have too much cash in your savings account is if you exceed the $250,000 limit set by the Federal Deposit Insurance Corporation (FDIC) — obviously not a concern for the average saver.

How much money should you always have in your bank account? ›

How much money do experts recommend keeping in your checking account? It's a good idea to keep one to two months' worth of living expenses plus a 30% buffer in your checking account.

Which of the following is not protected by the FDIC? ›

In addition to mutual funds, this includes investments in stock and bond markets, annuities, life insurance policies, and Treasury securities. Even the stocks, bonds, or other vehicles that you might have purchased through your bank's investment department are not insured.

What banks are not insured by FDIC? ›

The FDIC does not insure share accounts at credit unions.

Does adding a beneficiary increase FDIC coverage? ›

While some self-directed retirement accounts, like IRAs, permit the owner to name one or more beneficiaries, the existence of beneficiaries does not increase the available insurance coverage.

Can a bank close your account and keep the money? ›

What Happens When a Bank Closes Your Account? Your bank may notify you that it has closed your account, but it normally isn't required to do so. The bank is required, however, to return your money, minus any unpaid fees or charges. The returned money likely will come in the form of a check.

Can the FDIC run out of money? ›

(There are over $9 trillion on deposit at U.S. banks, by the way, so more than $3 trillion in deposits is completely uninsured.) It's true, of course, that when the FDIC fund risks running dry, as it did in 2009, it can go back to other parts of the federal government for help.

Do rich people worry about FDIC? ›

Millionaires don't worry about FDIC insurance. Their money is held in their name and not the name of the custodial private bank. Other millionaires have safe deposit boxes full of cash denominated in many different currencies.

How can I increase my FDIC coverage? ›

You can increase your FDIC insurance coverage by creating a payable-on-death account (also known as an informal trust, in-trust-for, or Totten Trust account) or titling an account in the name of a formal revocable trust . For these account types, each unique beneficiary adds $250,000 of coverage up to FDIC limits.

Can you trust FDIC? ›

For most trust depositors (those with less than $1,250,000), the FDIC expects the coverage levels to be unchanged.
...
Maximum insurance coverage for a trust owner when there are five or fewer unique beneficiaries.
Number of Unique BeneficiariesMaximum Deposit Insurance Coverage
5 Beneficiary$1,250,000
4 more rows
Mar 8, 2022

What happens when someone dies and you have a joint account? ›

Most joint bank accounts include automatic rights of survivorship, which means that after one account signer dies, the remaining signer (or signers) retain ownership of the money in the account. The surviving primary account owner can continue using the account, and the money in it, without any interruptions.

What is the difference between a primary account holder and a secondary account holder? ›

Key Takeaways

The primary account holder can make changes to the account and add an authorized user, if they so choose. A secondary account holder, called an authorized user, gets the benefits of using a credit card but isn't responsible for repaying the debt.

Who owns the money in a joint bank account? ›

The money in joint accounts belongs to both owners. Either person can withdraw or spend the money at will — even if they weren't the one to deposit the funds. The bank makes no distinction between money deposited by one person or the other, making a joint account useful for handling shared expenses.

How much money does the average person have in their bank account? ›

While the median bank account balance is $5,300, according to the latest SCF data, the average — or mean — balance is actually much higher, at $41,600.

What to do with money sitting in the bank? ›

What to do with extra cash
  1. Pay off debt. If you have a significant amount of debt, consider putting your extra money toward paying that down or off. ...
  2. Boost your emergency fund. ...
  3. Increase your investment contributions. ...
  4. Invest in yourself. ...
  5. Consider the timing. ...
  6. Go ahead and treat yourself.

How much cash should you keep at home? ›

Jesse Cramer, founder of The Best Interest and relationship manager at Cobblestone Capital Advisors, believes less than $1,000 is ideal. “It depends person to person, but an amount less than $1,000 is almost always preferred.

What is the smartest thing to do with a large sum of money? ›

It's not the most exciting way to spend your money, but it is the wisest. When you have more money at your disposal, the best way to use it is to pay off your debt so that you can stop paying interest. Prioritize high-interest debt first, such as credit card debt.

What is better than a savings account? ›

High-Yield Checking Accounts

There are high-yield checking accounts that offer better interest rates than savings accounts. Some of these checking accounts offer up to a 2% annual percentage yield, in contrast to lower savings account rates.

What is the safest way to invest a large sum of money? ›

Overview: Best low-risk investments in 2023
  1. High-yield savings accounts. ...
  2. Series I savings bonds. ...
  3. Short-term certificates of deposit. ...
  4. Money market funds. ...
  5. Treasury bills, notes, bonds and TIPS. ...
  6. Corporate bonds. ...
  7. Dividend-paying stocks. ...
  8. Preferred stocks.
Jan 1, 2023

Should I put all my bank accounts in my trust? ›

Some of your financial assets need to be owned by your trust and others need to name your trust as the beneficiary. With your day-to-day checking and savings accounts, I always recommend that you own those accounts in the name of your trust.

What are the disadvantages of a living trust? ›

No Asset Protection – A revocable living trust does not protect assets from the reach of creditors. Administrative Work is Needed – It takes time and effort to re-title all your assets from individual ownership over to a trust. All assets that are not formally transferred to the trust will have to go through probate.

What are the disadvantages of a revocable living trust? ›

Some of the Cons of a Revocable Trust

Shifting assets into a revocable trust won't save income or estate taxes. No asset protection. Although assets held in an irrevocable trust are generally beyond the reach of creditors, that's not true with a revocable trust.

How much money can you have in any one bank and be covered by FDIC insurance? ›

The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. The FDIC provides separate coverage for deposits held in different account ownership categories.

How many accounts can you have at a bank to be FDIC insured? ›

You and your spouse each can open individual accounts at a single bank, resulting in each of you having up to $250,000 FDIC-insured. You can then also open a joint account and each has $250,000 insured in that account. Between those three accounts, you could have up to $1 million FDIC-insured at one bank.

How Much Does FDIC cover if I have accounts at different banks? ›

The standard deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. The FDIC insures deposits that a person holds in one insured bank separately from any deposits that the person owns in another separately chartered insured bank.

How much will FDIC cover if your bank gets robbed? ›

The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. Deposits held in different ownership categories are separately insured, up to at least $250,000, even if held at the same bank.

Can I have more than $250000 of deposit insurance coverage at one FDIC-insured bank? ›

The FDIC refers to these different categories as “ownership categories.” This means that a bank customer who has multiple accounts may qualify for more than $250,000 in insurance coverage if the customer's funds are deposited in different ownership categories and the requirements for each ownership category are met.

Is your money insured if you get scammed? ›

No. Federal Deposit Insurance Corporation (FDIC) deposit insurance does not cover losses due to theft or fraud. Depending on the circumstances and your state's laws, you may be held responsible for the entire amount of a fraudulent check that you cash or deposit into your account.

What is the maximum amount of money you can have in a savings account? ›

Banks and credit unions typically don't have account maximums, nor are there any laws limiting how much you can keep in a bank account. So, you can deposit as much as you want into a savings account. However, one thing you should be aware of is FDIC insurance limits.

How much money should you keep in the bank? ›

Most financial experts end up suggesting you need a cash stash equal to six months of expenses: If you need $5,000 to survive every month, save $30,000. Personal finance guru Suze Orman advises an eight-month emergency fund because that's about how long it takes the average person to find a job.

Is FDIC insurance really necessary? ›

The FDIC protects the money depositors place in insured banks in the unlikely event of an insured-bank failure. Each depositor is insured to at least $250,000 per insured bank. FDIC deposit insurance covers all types of deposits held at an insured bank.

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