I was always under the impression that retirement and non-retirement accounts have separate insurance but a Schwab rep said today that this does NOT apply to brokered CDs. He said that retirement and non-retirement funds are added together for brokered CDs. He was very very adamant about that. I think he’s 100% wrong, but if he’s right I could have a major problem on my hands. Does anyone know whether he’s right or wrong? Thank you.
Answers
For example, If you have 3 brokered CDs at Schwab from Discover Bank with each CD being $100k you're likely going to discover (pun intended) that not all of your money is covered (IE you are $50k over the $250k limit), even if one of those 3 CDs is in a Schwab retirement account and the other two are in non-retirement accounts because all three are at Discover Bank under the same ownership category.
And remember, FDIC insurance is an aggregate insurance, if you have other accounts at Discover bank (to continue the above example) that fall into the same ownership category, those will also be included in the coverage calculation (as the link MAKNYC provided points out "so with pass-through insurance, a consumer’s brokered deposits are added to any traditional deposits he or she has at the same bank for purposes of calculating coverage.")
here's what the limits were over time (and what todays $250k would have been worth back then)
1933 - $2500 (today's limit would be about $10K)
1934 - $5k (today's limit would be about $11K)
1950 - $10k (todays limit would be about $20K)
1966 - $15k (todays limit would be about 27k)
1969 - $20k (todays limit would be about 30k)
1974 - $40k (todays limit would be about 41k or pretty much on par with the 1974 limit)
1980 - $100k (todays limit would be about 70k)
2008 - $250k (today's limit would be about 181k, falling somewhere inbetween the $250k and $100k limits)
For perspective, $250k today is about equal to the $100k limit back in 1988 and that $100k limit would persist for another 2 decades after that!
As you can see, the $250K limit is already at the historical high end of the limit (beating all limits prior to 1980 at their inception, sometimes by as much as 4x, and the 1980 limit was only better for 8 years of its 28 year run), $500k, while a nice number, would be way out of whack with where the limit has been historically.
Sorry to say, but the $250k limit being "too low" is a rich person's problem. FDIC wasn't put in place to protect the fabulously wealthy, it was put in place to protect the little guys from losing their life savings. At $250k, it's still doing that.
Remember, that's 250k per account category (single, joint, etc) per bank. And if you know how to save, you should also know not to put all your eggs in one basket. You don't put all your money in one account at one bank, nor should you keep all of it in cash accounts like savings, checking and CDs.
According to a 2019 survey, the median bank account balance for U.S. households is $5,300, the average $40,000. Either way you slice it, the vast majority of people have way less in their bank accounts than the $250k limit (so, as I said before it "still doing" the job of "protecting the little guys life savings") It's a very small percentage of the population for whom the 250k limit could be considered a problem, and they all have one thing in common: they're nowhere near being poor.
Try to recall, also, that the "1 million in savings" you mention is expected to be (at least partly) in some combination of 401ks, IRAs, HSAs, pensions, brokerage accounts, savings bonds, etc many of which do not fall under FDIC insurance. So even someone who has saved a total of 1 million across all those things won't necessarily run into problems with the 250k limit. which again brings us back to if that limit truly is a problem for you, you are rich whether you think you are or not.
I was looking at it from a reverse inflation angle -
250k in 2008 =350k today.
100k in 1989= 381k
https://www.fdic.gov/consumers/consumer/news/cnspr13/cdsfrombrokers.html
“The CDs of an one Issuer that you may purchase will be eligible for FDIC insurance up to $250,000 (including principal and accrued interest) for each insurable capacity (e.g., individual, joint, IRA, etc).