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Understanding How FDIC Insurance Protects Your Deposits


If you have walked into a bank recently or paid very close attention to your bank’s website you’ll notice that your bank is probably a member of something called the FDIC.

What is the FDIC?

FDIC stands for the Federal Deposit Insurance Corporation, which was founded in 1933 during the Great Depression. The main purpose of the FDIC is to protect the funds that consumers place into banks up to $250,000 per person, per bank, and per deposit type.

How does FDIC insurance work?

If the bank falls into bankruptcy, for example, the FDIC steps in to give the depositors — that means any folks holding money in their accounts — their money back as long as it falls under the coverage limits. In 1934, the insurance deposit limit was just $2,500. By the 1950s it was increased to $10,000 and continued to rise decade after decade. By 1980, the FDIC insurance limit was $100,000, where it remained until 2008. You might recall that was the year America was gripped by one of the worst financial crises in our history. In response to the recession, the FDIC limit was increased temporarily to $250,000.

At the time, the increase to $250,000 meant to last through 2013. But with the ratification of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, the FDIC coverage limit of $250,000 was made permanent.

Are credit unions FDIC-insured?

Credit unions are not insured by the FDIC. In fact, for many years after the FDIC was founded, credit union accounts weren’t insured at all. It wasn’t until 1970 that the National Credit Union Administration (NCUA) became an independent federal agency and Congress established the National Credit Union Share Insurance Fund (NCUSIF) to protect deposits at credit unions. The NCUA is an independent agency but is backed by the U.S. government.

NCUA vs FDIC

With the birth of the NCUSIF, credit union member deposits were originally insured up to $20,000 so long as their credit union was a member of the NCUA. These days, the NCUA insurance limit is the same as the FDIC limit — $250,000 per share owner, per insured credit union, for each account ownership category.

It is important to note that though the protection rules and limits are very similar to credit unions, not all credit unions are insured at the federal level like banks. If your credit union has the word “federal” in their name, it has to be insured by the NCUA.

However, there are plenty of state-chartered credit unions that do not have to use NCUA coverage. According to MyCreditUnion.gov, “If a credit union does not have the word ‘federal’ as a part of its name and is not headquartered in Arkansas, Delaware, South Dakota, Wyoming or the District of Columbia, then it is probably a state-chartered credit union.”

What exactly does FDIC insurance cover?

The FDIC specifically covers up to $250,000 per person, per bank, and per deposit type.

So, for example, if you have $300,000 across two checking accounts and one savings account at one FDIC-insured bank, then you are only covered for $250,000 of that amount if the bank goes under.

But only certain types of bank products are protected.

FDIC insurance covers these types of accounts:

  • Checking accounts
  • Negotiable order of withdrawal (NOW) accounts
  • Savings accounts
  • Money market deposit accounts (MMDAs)
  • Certificates of deposit (CD) and other time deposit
  • Official items issued by a bank (such as cashier's checks or money orders)

What the FDIC doesn’t cover

Investment products are not FDIC-insured, even if you purchased them at a bank.

  • Annuities
  • Mutual funds
  • Stocks
  • Bonds
  • Government securities
  • Municipal securities
  • U.S. Treasury securities
  • Safe (a.k.a. safety) deposit boxes

Safe deposit boxes: The contents of your safety deposit box are not covered by FDIC insurance, however, if your funds are stolen or destroyed due to robbery or natural disasters you may be covered under the bank’s insurance policy (also known as a banker’s bond).

Investment products: Investment products like stocks and mutual funds have certain protections under the Securities Investor Protection Corporation (SIPC) if your investment firm goes under. If the company where you hold your investments files for bankruptcy, for example, SIPC would help make sure you receive whatever funds are left in your account. However, SIPC does not protect against any investment losses incurred from the normal swings of the market, or if you were the victim of an investment scheme.

Bonds and annuities: Bonds issued by corporations are only backed by the credit of the company issuing them, while municipal, state and Treasury securities are back by the credit and tax revenues of the respective issuer. Depending on the type of annuity contract you own (fixed or variable), there may also be some protections available to you from the company you purchased it through and the state in which it was issued.

The specific protections and limits are determined by the state and the type of annuity you own.

Maximizing your FDIC coverage

Open accounts at more than one bank. There are several ways to insure your bank deposits beyond the $250,000 FDIC or NCUA limit. The easiest is to use different banks once you have deposits above $250,000 at one bank.

Open different ‘categories’ of accounts. You may also stretch your coverage by diversifying the types of accounts you have at a single bank, also known as ownership categories.

Across accounts, you will have a combined coverage of $250,000 from each bank. If you have a joint account with someone, you are granted $250,000 per co-owner.

Coverage extends to beneficiaries in some cases. “When a revocable trust owner names five or fewer beneficiaries, the owner’s trust deposits are insured up to $250,000 for each unique beneficiary,” according to the FDIC.

Here is the full list of ownership categories:

  • Single accounts
  • Certain retirement accounts
  • Joint accounts
  • Revocable trust accounts
  • Irrevocable trust accounts
  • Employee benefit plan accounts
  • Corporation/partnership/unincorporated association accounts
  • Government accounts

The chart below illustrates how they are able to maximize their coverage.

Let’s use a hypothetical example: A husband and wife, Allen and Michelle, have two children. Because they have various accounts under different ownership categories, they can actually qualify for up to $2.5 million by using multiple ownership categories.

Name of accountOwnership categoryOwnersBeneficiariesMaximum FDIC amount
Allen’s savings accountSingle accountAllen--$250,000
Michelle’s savings accountSingle accountMichelle--$250,000
Allen’s IRARetirement accountAllen--$250,000
Michelle’s IRARetirement accountMichelle--$250,000
Joint savings accountJoint accountAllen & Michelle--$500,000
Living trustRevocable trust accountAllen & MichelleChild 1 & Child 2$1,000,000
Total insurable amount:$2,500,000

Tips for keeping your money safe with FDIC insurance

One of the first things you’ll want to do is ensure that your bank is FDIC-insured. You can check your bank’s status here. Next, calculate your overall coverage and calculation using the Electronic Deposit Insurance Estimator (EDIE). This free tool allows you to enter your bank and deposit information and will generate a report and breakdown of what is and is not covered.

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