When keeping money in a bank account, one of the most important things to understand is how much of your money is insured by the FDIC in case the bank fails. The FDIC (Federal Deposit Insurance Corporation) provides deposit insurance, guaranteeing a certain amount of funds in your accounts in the event your bank can’t pay you back. Knowing exactly how much of your money is insured by the FDIC can give you peace of mind that your savings are protected.
FDIC Insurance Limits
The FDIC insures deposits up to $250,000 per depositor, per insured bank, for each account ownership category. This means if you have multiple accounts under the same ownership at the same insured bank, the total amount insured across all accounts cannot exceed $250,000.
Here are some key points about FDIC insurance limits:
– The $250,000 limit applies to all deposits held under the same ownership category at the same bank. This includes checking accounts, savings accounts, money market accounts, and CDs.
– The major ownership categories are individual accounts, joint accounts, certain revocable trust accounts, and certain retirement accounts like IRAs.
– For joint accounts, each co-owner’s share is insured up to $250,000. For example, for a joint account with two co-owners, the maximum amount insured is up to $500,000.
– IRAs and certain other retirement accounts are insured up to $250,000 per owner.
– Revocable trust accounts are insured up to $250,000 per owner if certain requirements are met.
– Accounts held in different ownership categories are separately insured. For example, if you have $300,000 in an individual account and $250,000 in a joint account at the same bank, both amounts would be fully insured.
So in summary, up to $250,000 is insured per depositor, per account ownership category, per bank. This limit applies to the total of all deposits held under the same ownership at the same bank.
Increasing FDIC Coverage
If you have more than $250,000 to deposit, there are a few options to maintain full insurance coverage:
– **Spread deposits across multiple ownership categories** – For example, you could open an individual account, a joint account with a spouse, and an IRA. This allows you to benefit from the separate $250,000 insurance limit for each category.
– **Use multiple banks** – Open accounts at different banks to take advantage of the $250,000 per bank limit. Make sure the banks are FDIC insured. You can readily locate banks offering FDIC insurance on the FDIC website.
– **Spread deposits across a bank’s separate FDIC certificates** – Some banks have multiple FDIC certificates, which allows you to get coverage beyond $250,000. Check with your bank to see if this applies.
– **Deposit in an NCUA-insured credit union** – Funds deposited at National Credit Union Administration (NCUA) insured credit unions have separate insurance limits through the NCUA. This allows you to expand your coverage.
Using a combination of these strategies allows you to deposit substantially more than $250,000 while still maintaining full insurance coverage on your funds.
FDIC Insurance Coverage Details
Here is some more in-depth information on exactly how FDIC insurance works and what types of accounts and deposits are covered:
What types of accounts are eligible for FDIC insurance?
These types of deposit accounts are eligible for FDIC insurance coverage:
– Checking accounts
– Savings accounts
– Money market deposit accounts
– Time deposits such as certificates of deposit (CDs)
– Cashier’s checks, money orders, and other official items issued by a bank
What types of retirement accounts are covered?
Retirement accounts such as IRAs and certain other retirement accounts are insured up to $250,000 per owner. This separates them from other individually owned accounts at the same bank.
Specific retirement accounts that are eligible include:
– Traditional IRAs
– Roth IRAs
– Simplified Employee Pension (SEP) IRAs
– Savings Incentive Match Plan for Employees (SIMPLE) IRAs
– Self-directed defined contribution plans, such as 401(k) and 403(b) plans
– Self-directed Keogh plans for self-employed individuals
What types of joint accounts are covered?
Joint accounts owned by two or more people are insured separately from individual accounts, up to $250,000 per co-owner. This includes joint checking, savings, money market, and CD accounts.
The co-owners on a joint account are assumed to own the funds equally, unless otherwise stated in the account records.
Here are some examples of how joint account coverage works:
– Joint account with 2 people: Up to $500,000 insured
– Joint account with 3 people: Up to $750,000 insured
– Joint account with 4 people: Up to $1,000,000 insured
Are revocable trust accounts eligible?
Revocable trust accounts, sometimes called payable on death or living trusts, can receive up to $250,000 in FDIC coverage per owner if certain requirements are met:
– The account title or records must indicate it is held pursuant to a trust relationship.
– The beneficiaries must be identified by name in the deposit account records.
– The trust must be revocable – the owner(s) must be able to revoke the trust and get the funds back.
If these criteria are met, each owner is insured up to $250,000, separate from other individual accounts they may hold at the same bank.
Are irrevocable trust accounts eligible?
Irrevocable trust accounts are insured differently from revocable trusts. Each beneficiary’s interest in the account is insured up to $250,000, subject to these rules:
– Interests of a beneficiary who is the spouse of an owner are added to the interests of the owner.
– Interests of beneficiaries related as parent and child are combined and insured up to $250,000 in the aggregate.
– Separate trust interests created by the same settlor for the same beneficiary are combined and insured up to $250,000 in the aggregate.
So coverage for irrevocable trusts can be limited if there are multiple beneficiaries who are related family members.
Are deposits in foreign currencies or foreign banks eligible?
Foreign currency deposits at an FDIC insured bank in the U.S. are eligible for FDIC insurance, up to the $250,000 limit. The value is calculated based on the exchange rate at the end of the month before the bank failure occurs.
Funds deposited in foreign banks (banks located outside the U.S.) are not eligible for FDIC coverage. Separate rules govern deposit insurance in other countries.
What Types of Deposits Are Not Covered?
While the FDIC insures most types of deposit accounts, certain deposits are not covered:
– Stock investments
– Bond investments
– Mutual funds
– Life insurance policies
– Annuities
– Municipal securities
– Safe deposit boxes
– U.S. Treasury bills, bonds or notes
In addition, funds invested in money market mutual funds, even if purchased at an FDIC-insured bank, are not insured deposits.
The FDIC also does not insure losses from fraud or theft, such as unauthorized check writing. It only covers depositor funds in the event of bank failure.
When Does FDIC Deposit Insurance Apply?
FDIC insurance only comes into play if an FDIC insured bank or savings institution fails and is taken over by regulators. It does not cover temporary declines in the value of deposits due to market fluctuations.
Some examples of when FDIC insurance would apply:
– The bank is closed by regulators, typically because it is insolvent or at risk of becoming insolvent.
– The FDIC is appointed as receiver to take over the failed bank’s deposits and wind down operations.
– The FDIC directly pays out insured depositors their covered money upon the bank’s closure. This usually occurs within a few business days.
– Depositors with uninsured funds (over $250,000) may recover a portion of their money through the FDIC receivership process, but there is no guarantee.
So FDIC insurance is triggered when regulators officially close down a failing bank. It provides assurance to depositors that their accounts are protected up to the $250,000 limit per ownership category.
FDIC Insurance History and Background
FDIC insurance was established in 1933 in response to the bank runs and closures that occurred during the Great Depression. Thousands of banks had failed, leading to widespread losses of depositors’ funds.
The FDIC was created to restore public confidence in the banking system and the safety of deposits. The insurance limit has gradually increased over time:
– 1934: Initial coverage limit of $2,500
– 1950: Increased to $10,000
– 1966: Increased to $15,000
– 1969: Increased to $20,000
– 1974: Increased to $40,000
– 1980: Increased to $100,000
– 2008: Temporarily increased to $250,000 during financial crisis
– 2010: Permanently increased to $250,000
The FDIC is funded through premiums paid by banks, not taxpayer dollars. It currently insures over $7 trillion of deposits across over 4,000 institutions. Since its inception, no depositor has ever lost a penny of insured funds due to a bank failure.
How to Determine Your Deposit Insurance Coverage
Figuring out precisely how much of your bank deposits are covered by FDIC insurance can take some legwork. Here are some tips:
– Review all your accounts and record balances, owners, beneficiaries, account types, banks, etc.
– Categorize accounts into ownership types – individual, joint, IRA, trust, etc.
– Aggregate accounts by ownership type at each bank. Make sure no category exceeds $250,000 at any one bank.
– For joint accounts, determine the actual ownership percentages if unevenly split. Document in the account records.
– Check if your banks have separate FDIC certificates that allow more coverage.
– Consider spreading funds across ownership categories, banks, credit unions, etc.
– Use the FDIC’s Electronic Deposit Insurance Estimator tool for assistance.
– Consult with your bank or financial advisor if uncertain about your specific situation.
Keeping detailed records is crucial to making sure all your deposits get full insurance coverage. Take advantage of the free resources provided by the FDIC.
Conclusion
Understanding FDIC deposit insurance gives you assurance that your bank savings have a safety net up to $250,000 per ownership category at each bank. While the limit has increased over the years, it is not unlimited. Be aware of the coverage rules and options to expand your protection through multiple banks, accounts, and credit unions if you have substantial savings. Monitoring your deposit coverage regularly is advised, especially when shifts occur in balances, ownerships, banks, or account structures.