Understanding the FDIC Insurance Limit and How to Maximize Your Coverage

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We’ve all seen that gold FDIC logo in the bank window advising us “each depositor insured to at least $250,000.” But how often have you thought about what that signage really means, and have you paused to think about whether or not your funds exceed the FDIC insurance limit?

After all, if you consider checking, savings, money market, CDs and retirement accounts, your total deposits may add up pretty quickly.

The good news is your deposits are more protected than you likely realize, and there are simple ways to protect your money, no matter how much you have, in the event of a bank failure. In this post, we’ll cover what the FDIC insurance limit is and how you can maximize your coverage.

What does the FDIC do?

The origins of the Federal Deposit Insurance Corporation go back to the Great Depression when Congress passed the Glass-Steagall Act to prevent both a run on the banks (a common occurrence prior to 1933) and to protect American depositors from ever again suffering the $1.3 billion in consumer losses from bank failures between 1929 and 1933.

Over the course of its 86-year history, the FDIC has protected the money of millions of depositors when American banks have failed, and no depositor has lost funds held at FDIC-insured banks.

The FDIC insures 14 different account ownership categories, including the following common types of accounts:

  • Single accounts
  • Joint accounts
  • Revocable trust accounts
  • Irrevocable trust accounts
  • Certain retirement accounts
  • Employee benefit plan accounts
  • Business/organization accounts

While many traditional banks and online banks are FDIC-insured, credit unions use a different type of coverage through the National Credit Union Administration (NCUA). There are nine states, however, that do not require credit unions to have primary deposit insurance with the NCUA; instead they can obtain coverage through private insurers. If you have deposits in a credit union instead of a bank, make sure you know what type of insurance that credit union holds.

Keep in mind your bank might be owned by a parent company that holds the FDIC insurance guarantee. For example, online bank is actually owned by Sallie Mae Bank, so Sallie Mae is the FDIC-insured entity for which you’d need to search using the FDIC’s Bank Find.

What is the FDIC insurance limit?

The FDIC protects consumers in the event of a bank failure, offering up to $250,000 in insurance coverage for each ownership category. In other words, if you have a personal checking account, a personal savings account, a joint checking account, and a CD at your bank, each of those accounts is automatically insured up to $250,000. That’s $1 million in total coverage at a single bank.

Let’s say you have those same four accounts at another bank. Those four accounts will also benefit from up to $250,000 in FDIC insurance for each ownership category, thus offering you another $1 million in protection in the event of a bank failure.

You can use the FDIC’s Electronic Deposit Insurance Estimator (EDIE) tool to determine the amount of insurance coverage you have for all types of bank accounts.

How to get more FDIC coverage

It’s actually relatively easy to increase your FDIC coverage.

The key, says Ken Tumin, founder of LendingTree-owned, is understanding ownership categories.

For example, if you have a personal savings account in your name and then also hold a joint savings account with your spouse, both of those accounts are eligible for $250,000 in FDIC coverage for a total of $500,000 in insured funds.

Another option, Tumin explains, is establishing trust accounts with beneficiaries. Each beneficiary of one of these payable-on-death accounts is eligible for $250,000 in FDIC coverage. Thus, if you have four beneficiaries on an irrevocable trust account, that’s a total of $1 million in FDIC insurance.

And while most consumers know they can also spread funds out across more than one bank to increase FDIC coverage, there is the hassle factor of not having all of your money in one place.

According to Tumin, that’s where the Certificate of Deposit Account Registry Service (CDARS) comes in handy. CDARS allows you to distribute your CDs across multiple, in-network banks but work with only one bank.

If you need to keep funds liquid but still want greater FDIC coverage, then Tumin recommends using Insured Cash Sweep (ICS). ICS allows you to spread your money across multiple checking or money market accounts, for example, while still dealing with only one bank.

What if your bank fails?

So what happens if your bank fails? It’s not as uncommon as you might expect or hope. During the most recent recession, more than 500 banks failed. The good news is that FDIC or NCUA coverage should kick in automatically, leaving consumers nothing to do but wait for their covered funds to be returned.

If it happens to your bank, the most typical scenario is for the FDIC to arrange for another bank to assume all the failed bank’s deposits.

“So if you had $100,000 at Bank A, then Bank B will assume that deposit,” Tumin says. “This happens automatically; there is nothing the consumer needs to do.”

If the FDIC cannot find another bank to acquire the deposits of a failed bank, such as in the case of fraud, then the corporation will close the bank and mail checks to the depositors for their insured deposits. Tumin says the FDIC generally mails those checks within a week or two of the bank’s failure.

As great a benefit as FDIC insurance is, Tumin says it’s important to remember it won’t cover deposit accounts held by brokerage houses, for example. The FDIC only insures banks. Thus, it’s important to review all of your deposit accounts, determine what kind of financial institution is actually holding them, and ensure your beneficiaries are up-to-date in order to maintain the maximum FDIC coverage available to you.