Popular Posts

What Is the FDIC Insurance Limit, and How Does Coverage Work?


Written by Ken Tumin | Edited by Ali Cybulski | Published on 4/5/2024

 

The Federal Deposit Insurance Corp. (FDIC) was established in 1933 to protect the accounts of Americans if a bank were to fail. You’re covered up to the standard FDIC insurance limit of $250,000 at FDIC-insured banks, and you may be able to insure accounts above that limit if you meet specific rules.

Those rules have evolved during the FDIC’s history, with the latest changes taking effect on April 1, 2024. These changes involve deposit insurance rules for trust accounts. Here are more details about the new rules and how standard FDIC insurance coverage works.

On this page:

 

What is FDIC insurance?

FDIC insurance protects your money at an FDIC-insured bank. It covers common deposit accounts, such as checking accounts, savings accounts, money market accounts and certificates of deposit (CDs). Coverage is automatic when you open an account at an FDIC-insured bank.

The FDIC insures bank deposits, while the National Credit Union Administration (NCUA) protects credit union accounts. Both are independent federal agencies, and just like the FDIC, the NCUA insures deposit accounts of up to $250,000. Plus both account types can hold even more in joint accounts, as the limit applies to each account holder.

If you’re unsure whether a bank is federally insured, you can use search tools from the FDIC or the NCUA to check. Simply search for the bank using the FDIC’s BankFind Suite or the NCUA’s Credit Union Locator or Research a Credit Union tool.

Although rare, not all banks and credit unions in the U.S. are FDIC or NCUA members. Some may be insured by state or private agencies; others may lack reputable deposit insurance and could be scams.

What are FDIC coverage limits and categories?

The FDIC standard deposit insurance amount is $250,000 per depositor, per FDIC-insured bank, per ownership category. A depositor may be any natural person, not just a citizen or U.S. resident. In addition, a depositor may be a legal entity, such as a corporation.

Coverage can be extended above the $250,000 standard limit for one depositor at one bank through the use of ownership categories. You’ll need to put money in accounts in different ownership categories, or use more than one FDIC-insured bank to insure all of your deposits.

FDIC coverage at a glance
Account ownership category Insurance limit
Single accounts $250,000
Joint accounts $250,000 per co-owner
Trust accounts (combines revocable and irrevocable trust accounts as of April 1, 2024) $250,000 for each trust beneficiary, not to exceed five
Certain retirement accounts, including IRAs $250,000 per owner
Corporation, partnership and unincorporated association accounts $250,000 per legal entity
Government accounts $250,000 per official custodian (more coverage available, subject to specific conditions)
Mortgage servicer accounts Up to $250,000 per mortgagor

Source: FDIC

What should you know about changes to FDIC insurance for trust accounts?

The FDIC has changed deposit insurance rules for trust accounts as of April 1, 2024. Trust accounts can be complicated, and the FDIC has promoted the benefit of this rule change as the simplification of insurance coverage for trust accounts.

Many depositors, especially those with deposits of $250,000 or less per bank, won’t be affected by the rule change, according to the FDIC. But the rule could decrease coverage for some.

The FDIC cites an example of a depositor insured for more than $1.25 million per bank under revocable trust rules. The new rule will limit coverage to $1.25 million.

The rule will also combine irrevocable trust and revocable trust categories into a single category called trust accounts.

Each trust owner in this category will be insured up to $250,000 per eligible primary beneficiary, up to five beneficiaries. The coverage limit is the same, regardless of the type of trust.

FDIC insurance coverage for single-owner trusts
Number of beneficiaries Insurance limit
1 $250,000
2 $500,000
3 $750,000
4 $1 million
5 $1.25 million
More than 5 $1.25 million

Source: FDIC

A notable example of the simplification of insurance rules for trust accounts is with the requirements of informal revocable trusts. This type of trust indicates in bank account records that account ownership changes to named beneficiaries upon the owner’s death.

Before this rule change, the trust relationship had to exist in the account title in commonly accepted terms, such as “payable on death.” Often, consumers had difficulty verifying the trust relationship in the account title because banks had different ways of recording the title. The new rule eliminates this titling requirement and only requires that beneficiaries of informal trusts be identified in bank records.

FDIC insurance: What is and isn’t covered?

FDIC insurance covers deposit accounts at insured banks. This coverage includes the principal of the bank deposits and all accrued interest through the date of the bank’s closing, up to the insurance limit.

FDIC insurance covers:

  • Checking accounts
  • Negotiable order of withdrawal (NOW) accounts
  • Money market accounts
  • Savings accounts
  • CDs — sometimes called time deposits
  • Cashier’s checks and money orders

FDIC insurance does not cover:

  • Mutual funds, including money market mutual funds
  • Stocks
  • Bonds
  • Treasury securities
  • Municipal securities
  • Crypto assets
  • Life insurance policies
  • Annuities
  • Safe deposit box contents
  • Money stored in nonbank payment apps

How to insure a deposit that exceeds the FDIC limit

The rich aren’t the only ones who may need to insure funds that exceed the FDIC limit. Selling a house, receiving an inheritance and collecting a personal injury judgment are three examples when an average person may need to hold more than $250,000 in a bank account. Here are some ways you can insure a big balance.

Tip: You can check your coverage using the FDIC’s Electronic Deposit Insurance Estimator (EDIE).

Open accounts at multiple banks

The easiest way to insure funds that exceed the $250,000 FDIC limit is to spread money around to different FDIC-insured banks. A balance that far exceeds $250,000 may require opening and maintaining accounts at many banks to ensure that the entire balance remains covered.

A labor-saving option is the use of sweep accounts that are available from brokerage firms, financial technology companies and some banks. A sweep account automatically distributes balances to ensure they remain under the $250,000 coverage limit.

Open a joint account

Opening a joint account is a simple way to qualify for more than $250,000 in FDIC coverage. Each account holder adds $250,000 of coverage, meaning two people would qualify for up to $500,000.

Open accounts in different ownership categories

You could open a single account and a joint account, for example. A single account allows maximum coverage of $250,000 and a joint account with two people as owners could add up to $500,000, for total coverage of $750,000. You could also look at adding other ownership categories, including retirement accounts and trust accounts.

Open a trust account

A trust account holds funds for beneficiaries. An account with one owner can provide up to $1.25 million in total FDIC coverage as of April 1, 2024. The account holder’s deposits are insured up to $250,000 for each beneficiary, not to exceed five beneficiaries.

Multiple owners can increase the coverage. For example, a trust account with two owners can provide up to $2.5 million in total coverage.

What happens to your money if your bank fails?

Bank failures are typically rare. In 2023, five banks failed and no banks failed the year before that, according to the FDIC.

With most bank failures, depositors experience no interruptions in service or loss of access to their accounts. In these cases, the FDIC finds another bank that agrees to assume the deposits of the failed bank.

Depositors of the failed bank automatically become depositors of the new bank. Sometimes, all deposits — even those above the FDIC insurance coverage limits — are assumed by the new bank. Other times, only insured deposits are assumed by the new bank.

However, the new bank may change rates and terms of deposit accounts or close CDs early with no penalty — that could mean the loss of a high interest rate.

A less common outcome when a bank fails is that the FDIC may be unable to find another bank to take on the failed bank’s deposits. In that case, the FDIC would mail checks to depositors for the total insured balance in each account. Checks usually come a few days within the bank’s closure; the insured balance includes principal and interest up to the day of closure.

Comments


P_D
  |     |   Comment #8
Great primer.

I have written a lot about how the new FDIC rule changes may become the topic of lawsuits at some point because the new rules expose some depositors who entered into CD arrangements with large balances, in good faith, thinking they were fully insured will no longer be fully insured under the new rules and will be vulnerable to financial damages.

So I won't talk about that again right now.

But I do want to mention that to my knowledge this is the first time in FDIC history that coverage for ANY insured deposit account has been reduced. I find that concerning. And especially concerning because neither the FDIC nor the banks directly disclosed this even to those depositors who were affected by this loss of coverage, nor made any accommodation to protect them from damages.
milty
  |     |   Comment #15
I'll be interested to know if the FDIC April 2024 change does indeed result in a class-action lawsuit or policy change for those possibly affected like yourself. I understand, from your point of view, that the rules were changed after the fact, and therefore those negatively affected by the rule change should be grandfathered from it. In general, I totally agree with that view, but have no idea what all the FDIC verbiage is, if any, regarding future rule changes.
LovinSomeCDs
  |     |   Comment #9
There are simply too many caveats to insuring your funds, so I prefer to KISS!

If youre single, keep each banks total deposits under 250k
If youre married (joint), keep it under 500k

There are more than 10,000 banks/CUs in the U.S. Spread it out and call it a day.
P_D
  |     |   Comment #10
"Before this rule change, the trust relationship had to exist in the account title in commonly accepted terms, such as “payable on death.” Often, consumers had difficulty verifying the trust relationship in the account title because banks had different ways of recording the title. "***The new rule eliminates this titling requirement and only requires that beneficiaries of informal trusts be identified in bank records***"

This is another thing I've commented on many times for years. How is the depositor supposed to know what the bank has in their records? Are you permitted to send your auditor to audit the bank records to make sure they have the account properly recorded?

It seems to me they go from a requirement that you are at least able to see on your statements for example to another requirement that you have no way to confirm has been met leaving depositors forever unsure whether they are covered or not until it's too late.

With this last set of changes I'm even more concerned about what they know that we don't and their seeming lack of interest in protecting depositors.
milty
  |     |   Comment #16
I always ask the FIs to send me a letter or email regarding how my accounts are setup with respect to ownership and beneficiaries, so I at least have that for my records.
P_D
  |     |   Comment #20
So do I, but those are part of your records not necessarily part of the bank records.

There's just too much wiggle room in this deposit insurance system to have confidence in it.

But the fact that they have now simply thrown some depositors under the bus in my view crosses the line. I do not trust them. And the whole point of the insurance system is to create trust.
1hrlamke
  |     |   Comment #11
The only problem with joint accounts is when one of the parties dies and the coverage drops to 250K.
tommie188
  |     |   Comment #13
I have a question: If I have $250,000 in deposit accounts owned by me and also have $500,000 in trust accounts with 2 beneficiaries at the same bank, am I covered up to $500,000 or $750,000??
P_D
  |     |   Comment #14
$750,000

$250,000 for the individual account

$500,000 for the trust account with 2 beneficiaries
gorthegolfer
  |     |   Comment #17
WHAT IS THE "ORDER" OF PAYOFF TO DEPOSITORS IF THEY HAVE MORE THAN AN INSURED LIMIT IN AN IRA ACCOUNT-
EXAMPLE: NAVY FEDERAL "FAILS", A PERSON HAS $2 MILLION IN AN IRA, ONLY $250K IS INSURED, NOW ITS TIME FOR LIQUIDATION OF NAVY FEDERAL, DO IRA DEPOSITS OVER THE INSURED LIMIT HAVE ANY PRIORITY IN LIQUIDATION? OR ARE THEY LAST IN THE ORDER? OR ARE THEY IMMEDIATELY JUST PLAIN OUT OF LUCK TOTALLY?
MZD
  |     |   Comment #19
Rather than relying on someone who may not have ANY knowledge of what they speak of. Contact the NCUA @ 800.755.1030 You can also go to National Credit Union Administration website & I THINK you can email them your questions. Good Luck
IGR
  |     |   Comment #29
FDIC makes the Payments to insured Depositors due to Participating Bank Closure. If Bank's Closure is followed by Liquidation the Uninsured Depositors are Paid Next from the proceeds of the Banks Liquidated Asset, less Federal liability.
There is no preferential treatment based on types and categories of Uninsured Deposits, Recovered Proceeds of Liquidated Asset are distributed equitably and proportionally.
In many instances FDIC will make advance payments to Uninsured Depositors in leu of anticipated recovery.

To be Trustee One Must be the Owner.
As Random thought for Author, Editor, Contributors and class action wannabes...
While new FDIC rules limit number of Beneficiaries it sets no limit on the number of Owners and thus no limit on Insured Deposits
#21 - This comment has been removed for violating our comment policy.
outtempster
  |     |   Comment #22
Do you have to open the account as a "trust", and specified the account owner, the trustee and the beneficiary. Can the owner and the trustee be the same person? I think some account allow you to open an account as individual but then add POD beneficiaries. In that case, is that an individual account or a trust account (since it has POD). 

I guess it's another example of confusion for people who are not familiar with what a trust account requires, especially for the record on Bank side.
Mak
  |     |   Comment #23
Can an owner and a trustee be the same person? Yes

If you open an individual account and add a beneficiary that account becomes an informal revocable trust insured up to $250k per beneficiary up to  5 beneficiaries $1,250,000. If you do not add a beneficiary then the account is an individual account insured yup to $250k
Shinto
  |     |   Comment #24
If you own a CD in a single account, and a joint account CD with an adult child, does the bank issue separate interest earned statements for tax purposes, or can taxes be paid by just the single account holder.
Mak
  |     |   Comment #25
I can tell you from my own experience, we file jointly ....a 1099 for each account., whoever is the primary on the joint CD is who will get the 1099.
thumbsup
  |     |   Comment #26
Do charitable organizations count as a beneficiary?
P_D
  |     |   Comment #27
It depends on the FI. Some of them will allow them and some will not.

if you do name a non-profit or charity as a beneficiary with the intention of having it count towards your FDIC coverage, make sure it is qualified under IRS regulations.
scottj
  |     |   Comment #30
Some accounts let me open account in trust name but some wont but allow me to name trust as beneficiary. Opening in trust name usually requires me to send in some of the pages for it but when I add trust a beneficiary, they just ask for trust title. So the bank does not have any beneficiary names. Would this new rule change anything with that? If bank failed would FDIC just request a copy of trust where it shows beneficiaries to determine coverage?

The financial institution, product, and APY (Annual Percentage Yield) data displayed on this website is gathered from various sources and may not reflect all of the offers available in your region. Although we strive to provide the most accurate data possible, we cannot guarantee its accuracy. The content displayed is for general information purposes only; always verify account details and availability with the financial institution before opening an account. Contact [email protected] to report inaccurate info or to request offers be included in this website. We are not affiliated with the financial institutions included in this website.