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What’s NOT Protected by FDIC Insurance

One of the things that help many of us feel a little more secure about the money we have in the bank is the fact that it should be protected by the FDIC. We like to know that our money is relatively safe. Even if the bank fails, we will be able to access our money, either by having it automatically transferred to an acquiring bank, or by having it given to us by the FDIC. The Federal Deposit Insurance Corporation provides a way for you to get your money if the bank fails. You accounts are protected, up to $250,000. However, it is important to understand that not everything at your bank is protected by the FDIC.

What is Protected By the FDIC

In general, most deposit accounts are protected by the FDIC. Checking accounts, savings accounts and CDs are generally protected. Interest bearing deposit accounts are protected in the amount of at least $250,000. It is important to note that this $250,000 is an aggregate amount for each bank; all of your accounts at a single bank are added together to get this amount. As a result, in some cases (there are exceptions), if you have more than $250,000 deposited at a bank, the excess may not be covered by the FDIC.

It is also worth noting that as of December 31, 2010, and continuing through December 31, 2012, transaction accounts that do not bear interest are fully insured – no matter the balance. Here is how the FDIC defines eligible accounts:

A noninterest-bearing transaction account is a deposit account where interest is neither accrued nor paid; depositors are permitted to make an unlimited number of transfers and withdrawals; and the bank does not reserve the right to require advance notice of an intended withdrawal.

Basically, your checking account is protected if it does not bear interest, no matter how high the balance is, until the end of 2012. Note that Money Market Deposit Accounts and Negotiable Order of Withdrawal accounts are not protected by unlimited insurance (although they are protected up to $250,000), even if interest is not paid on the account.

Certain retirement accounts are also eligible for FDIC protection. These include different types of IRAs, self-directed Keogh account and 457 plans.

What ISN’T Protected by the FDIC

Since banks today offer a wide array of financial products and services beyond bank accounts. It is important to realize that not all of these products and services are insured by the FDIC. Some of the items not covered by the FDIC include:

  • Mutual Funds: Mutual funds are not FDIC insured. You are at your own risk in the event of a loss. This can also include the company going bankrupt. Money market mutual funds are included in this category of unprotected products.
  • Stocks: If you have bought stocks through your bank, these securities are not FDIC insured.
  • Treasuries and other bonds: You will also find that bonds are not protected by FDIC insurance. If the organization from which the bond comes defaults, you will have to sustain the entire loss.
  • Safe Deposit Boxes: Anything that you put in a safe deposit box is not insured by the FDIC. Some banks do insure these boxes separately. Before you put anything into a safe deposit box, you need to read the contract so that you know exactly what is covered. If the box and its contents are destroyed, you may be on the hook. Some prefer to get their own theft or fire insurance to protect them from losses related to safe deposit box. In most cases, if the bank fails, you will receive instructions on how to proceed to get access to your safe deposit box.
  • Theft: The FDIC does not insure against bank robbery, but that doesn’t mean that you are unprotected. Check to see if your financial institution has what is known as a banker’s blanket bond. This is insurance the bank gets separately to cover losses due to theft, as well as other items not covered by the FDIC, including fire, embezzlement, earthquake, and flood.
  • Annuities: Some banks offer annuities that are underwritten by insurance companies. The FDIC will not cover these.
  • Premiums paid on secondary brokered deposits: When you get a brokered CD on the secondary market, you may find that most of these products trade for a premium to par. Realize that this not covered by the FDIC if the bank fails and is not acquired by another institution.
  • Promised Bonuses: Sometimes, when you sign up for an account, you are promised a bonus after certain conditions are met. The FDIC does not cover these bonuses, so if a bank fails, you may not receive the bonus promised, even if the bank is acquired by another. (An example of this is when NetBank failed and was acquired by ING Direct.)

Before you open a bank account, double check to see if it is insured by the FDIC. The FDIC has a very handy feature called Bank Find that can help you discover whether or not your bank is protected. It is very comforting to know that, in most cases, your deposit accounts are quite safe. If you have more than $250,000 in cash that you want deposited at banks, you can take steps to increase how much is covered by putting some of it at a different bank. And, if you choose to get products and services not protected by the FDIC, you can find out what steps are being taken to protect you.

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Previous Comments
  |     |   Comment #1
Some impractical advice: "Check to see if your financial institution has what is known as a banker’s blanket bond. "

The FDIC article "Insured or Not Insured?" says:

"Stolen funds may be covered by what's called a banker's blanket bond, which is a multi-purpose insurance policy a bank purchases to protect itself from fire, flood, earthquake, robbery, defalcation, embezzlement and other causes of disappearing funds.

"In any event, an occurrence such as a fire or bank robbery may result in a loss to the bank but should not result in a loss to the bank's customers. If a third party somehow gains access to your account and transacts business that you would not approve of, you must contact the bank and your local law enforcement authorities, who have jurisdiction over this type of wrongdoing."


Instead of depending on condensed and possibly mangled info, go to the sources:

Banks: http://www.fdic.gov/

Credit Unions: http://www.ncua.gov/
  |     |   Comment #2
I agree with cactus.


Far too few bank and credit union depositors are aware of their vulnerability to theft.  I myself, for the longest time, just assumed the FDIC would be there for me in the event of theft or fraud.  This is completely erroneous;  it could not be farther from the truth.  My eyes were opened within the last few years when some depositors had to sue the bank in an effort to recover funds lost when an employee went "off the reservation".  What a nightmare.

Loss of my money due to theft or fraud is my #1 concern, since everything I have is inside credit unions.  When I telephone them and tell them I've suffered a loss, how do I prove to them I didn't somehow cause the loss myself.  How do I prove a negative?

Against this possibility I check my balances on line almost daily.  But still even so, I'm working a "close barn door after escape of horse" strategy.

Still all of that said, for me the most troubling part is knowing, now as I finally do, that neither the FDIC nor the FSLIC gives a hoot.  When it comes to theft and/or fraud, don't even bother to call either of 'em.
  |     |   Comment #3
The statement "... $250,000 is an aggregate amount for each bank; all of your accounts at a single bank are added together to get this amount." isn't exactly correct. All of your accounts of a given category in each bank are added together. Single, Retirement and Joint are examples of categories of accounts. See the FDIC website for complete information. They have an example in which a family of four could have up to $3,000,000 in insured accounts of various categories.
  |     |   Comment #4
This may be obvious to most . . . but it wasn't to me . . . One thing that is not covered is accrued interest over the $250,000 limit.  I learned this the hard way when the limit was $100,000.  It is especially important for CDs.

You always want to open your CDs in an amount so that the principal plus accrued interest is less than the max.  For instance if you have a $250,000 5% CD, paying interest by check monthly and the bank is taken over by the FDIC, they will pay you $250,000 but not $1000 they owe for the current month's interest. 
  |     |   Comment #5
Especially important if you are leaving the interest to accumulate in the CD account.
  |     |   Comment #6
Great topic and article.  Some of this is (surprising) news to me. 

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