June 6, 2021

FDIC Insurance Limits

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What is FDIC Insurance what are the insurance limits per account? Find out if your money is safe from bank closures and how to maximize your coverage.

Have money in the bank? You'll want to be sure it's protected in case of bank closure.

That's where FDIC Insurance comes in.

Although bank closures are rare, it's important to know how you're covered. Learn about FDIC insurance limits below. Plus, find out how to maximize your coverage past the $250K limit.

What Does FDIC Insurance Mean?

The Federal Deposit Insurance Corporation (FDIC) is an independent U.S. government agency that protects monetary deposit accounts — such as checking accounts, savings accounts, and CDs — in the event of a bank default or closure.

It does not protect investment vehicles like stocks, bonds, and mutual funds, nor does it protect deposits in the event of lost or stolen property.

How do you find out if a bank is FDIC insured?
You can look for FDIC signage at branch locations or online on a bank's website, use the FDIC BankFind tool, or call the FDIC at 877-275-3342.

For credit unions, the National Credit Union Administration (NCUA) provides the same deposit insurance as the FDIC for the same amounts.

What's Covered by FDIC Insurance (and What's Not)

FDIC Deposit Insurance Covers:[1]

  • Single bank account: Up to $250,000 per owner
  • Joint bank account: Up to $250,000 per owner
  • Certain retirement accounts (such as IRA and 401(k): Up to $250,000 per owner
  • Revocable trust account: Owner insured $250,000 for each beneficiary
  • Irrevocable trust account: $250,000 for the trust (more coverage available if requirements are met)
  • Employee benefit plan account: $250,000 for the noncontingent interest of each plan participant
  • Government account: Up to $250,000 per official custodian
  • Corporation, partnership, or unincorporated association account: up to $250,000 per corporation, partnership, or unincorporated association

FDIC Deposit Insurance Does NOT Cover:[2]

  • Annuities
  • Mutual funds or ETFs
  • Stocks
  • Bonds
  • Life insurance policies
  • U.S. Treasury Securities
  • Municipal securities

Are investments insured another way?
Yes. The SIPC insures investors up to $500,000 in the event of a brokerage firm being forced into bankruptcy.

Is the $250,000 Insurance per Account?

Not exactly. FDIC coverage is $250,000 per depositor, per FDIC-insured bank, per ownership category.

The depositor is the person whose name is on the account - meaning you, or you and your spouse (for a joint account).

The ownership category describes the type of account you have. Ownership categories include single accounts, joint accounts, revocable trusts, irrevocable trusts and more.

For example, a joint account you own with your spouse will be FDIC insured for $500,000 because there are two depositors listed on the account.

Each individual account does not receive $250K in coverage, but rather the owner of the account and per account type.

Do some banks insure more than $250,000?
No, insurance limits are universally applied to all member FDIC banks. Insurance limits are regulated by the government and are not left up to the discretion of individual banks.

Are Joint Accounts Insured for $500,000?

Yes, if a joint account is owned by two people (i.e., depositors), it is insured for $500,000.

Some banks allow more than two people to share ownership of joint accounts, in which case the FDIC insurance on said account would be higher.

The highest deposit amount that can be insured with a single bank entity is $1 million.

Joint accounts carry some additional risk, so careful consideration should be made before opening a joint account.

For example, each party must have equal rights to make withdrawals and each party is individually responsible for the actions of the other. If your partner overdraws a joint checking account, you are on the hook to repay the bank.

How Can You Insure More than $250,000?

There are a number of reasons why you may want to insure more than $250,000 — even for a short period of time. You may have sold your home or business recently, received an inheritance, or heck, even won the lottery.

Here are four ways to receive more than $250,000 in FDIC deposit insurance:

  1. Use multiple banks: To use this method, each bank must be a distinct entity. Some banks (such as Axos Bank) own other banks but are technically the same business entity. You can check this by checking their FDIC insurance numbers.

  2. Open accounts in separate account categories: For example, if you own a small business, you can open personal and business checking accounts and receive up to $250,000 in FDIC insurance for each account.

  3. Open a joint account: Joint accounts allow you to insure $250,000 for each account owner, up to $1 million at any individual bank entity.

  4. Use MaxMyInterest: For a fee of 0.02% per quarter, MaxMyInterest will divide your large deposit into separate high-yield savings accounts in $250,000 increments.

What Happens to Your Money When a Bank Fails

If a bank cannot meet its financial obligations or loses substantial revenue from unexpected losses such as a crash in the stock market, it may be forced into bankruptcy.

When this happens, the FDIC will first look for a second bank to take over the assets of the bank facing closure.

If the FDIC cannot locate a bank willing to take on the assets of the failed bank, the FDIC will simply issue checks for the insured amount to each individual depositor. If this is the case, the FDIC typically pays insurance on the next business day, according to their website.

The Bottom Line

While bank closures are rare, they do happen. And when they do, it is often unexpected as the FDIC does not notify depositors in advance if a bank closure is about to take place. As a result, you want to make sure that 100% of your deposits are fully insured to ensure that you don't lose money.

By remaining informed about the different types of accounts you own, you can rest easy knowing that your money is safe.

References

Write to Justin Barnard at feedback@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

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