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

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.

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.

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.

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.