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Understanding the FDIC Insurance Limit and How to Maximize Your Coverage

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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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 SmartyPig.com 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 DepositAccounts.com, 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.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Deborah Huso
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Deborah Huso is a writer at MagnifyMoney. You can email Deborah here

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Generational Wealth Gap Is Greater Than 20 Years Ago

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

The golden years have never glittered so bright, according to a recent MagnifyMoney analysis of Federal Reserve data that revealed baby boomers possess a much higher net worth than Americans in their age group 20 years ago.

Meanwhile, today’s millennials lag a little compared with their counterparts in 1998. In short, today’s baby boomers (ages 52 to 70 in 2016) are rolling in wealth while young adults struggle to stay above debt.

Key takeaways

    • The average millennial (ages 20 to 35 in 2016) has a net worth of $100,800 in 2019. By comparison, the average Generation Xer (ages 36 to 51) has a net worth of $509,100 and the average baby boomer has an average net worth of $1,210,100. The median net worth for millennials is $13,600, compared with $94,500 for Gen X and $206,700 for baby boomers.

    • The net worth gap between older and younger Americans has widened into a chasm during the last 20 years. In 1998, the average older household amassed roughly seven times the net worth of younger households ($747,600 versus $103,400). In 2019, the average boomer household has 12 times the net worth of a millennial household ($1,210,100 vs. $100,800).

    • Similarly, the median net worth of both millennials and Gen Xers is less than their age cohorts in 1998, while today’s baby boomers are slightly wealthier than their counterparts 20 years ago.

  • Millennial households have $2,600 less in net worth than those their age in 1998, when they had an average net worth of $103,400 in inflation-adjusted dollars. Meanwhile, the average baby boomer net worth has nearly doubled from households their age in 1998, from $747,600 in 1998 to $1,210,100 in 2019.
  • Despite being the youngest, millennials have liabilities (such as debt) in far greater proportions than the other age groups studied — roughly 44% the size of their assets. The 20-to-35 age group in 1998 only had liabilities 36% the size of their assets.

What is net worth and why is it important?

A person’s net worth is all their assets minus any liabilities. Net worth paints one of the most accurate portraits of someone’s financial health since it takes into account looming obligations like student or credit card debt, as well as assets such as home equity, investments and savings.

Examples of AssetsExamples of Liabilities
Home equityMortgage
Investments in stocks and bondsCredit card debt
Car (owned, not leased)Student loan debt
Cash value of whole life insuranceMedical expenses

You’ll notice that although assets help boost your net worth, not every asset is easy to convert into cash.

For example, if you own a car (or a plane or a yacht), it counts as an asset because, in theory, you can turn it into money should the need arise by selling it. But as anyone who has ever tried to sell a used car or even a house can attest, what the market will give you for the asset may not be what you expected. Not to mention an asset such as your vehicle or house fulfills a vital need (like getting you to work or providing you shelter) that you’ll have to satisfy one way or the other. Nonetheless, experts classify the value of these not-too-liquid sources of wealth as assets.

While one’s net worth can fluctuate dramatically depending on life events (think of all the debt assumed by taking out a mortgage on your first home or from student loans), the overall trend serves as a good measure of how well someone is meeting their financial obligations. Here’s the current breakdown of assets and liabilities for each of the age groups examined:


For today’s millennials, liabilities such as debt are about 44% of their assets. While Gen Xers have a greater amount of liabilities, they also have more assets, so liabilities are only roughly 24% of their assets. Boomers have the most advantageous ratio of liabilities to assets, with liabilities at only about 8% of their assets.

To find out your net worth, you can use Charles Schwab’s worksheet or calculators from Kiplinger or CNN Money, among many other options.

Methodology

MagnifyMoney examined the most recent Federal Reserve data on household assets and liabilities and estimated the average increase in household asset and liability data based on economic data from the Federal Reserve and the Federal Deposit Insurance Corp., as of March 2019. Values for all dates are in inflation-adjusted dollars.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

James Ellis
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James Ellis is a writer at MagnifyMoney. You can email James here

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Chime vs Simple: Which Fintech Disruptor is Better?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Chime and Simple are online-only, mobile banking apps that aim to disrupt the way traditional bank accounts work. Both apps offer tightly integrated budgeting features that make managing your money easier and more automated, and give you access to thousands of fee-free ATMs through partner networks.

Chime offers a checking account and an optional savings account, although the prior yields no interest and the latter’s APY is negligible.  Chime’s big claim to being a fintech disruptor is its ability to credit your account with your paycheck two days ahead of schedule. Chime partners with The Bancorp Bank to offer FDIC-insured bank accounts and issue a Visa® debit card.

Simple’s cash management account is a hybrid checking/savings vehicle that yields a competitive APY. Simple’s accounts are managed in partnership with BBVA Compass, which issues the Simple Visa® debit card and provides FDIC insurance on your money.

Chime vs Simple: How their rates compare

 ChimeSimpleNational averageOnline bank average
Savings0.01% APY2.02% APY for balances above $2,0000.27% APY1.69% APY
Checkingn/a2.02% APY0.19% APY0.52% APY

Chime focuses on saving the money you already have, rather than growing your balances at a competitive rate. Chime Spending Account, its checking account product, earns zero interest, while its optional Savings Account earns at only a minimal rate.

Simple’s hybrid account offers a competitive yield for savings, but you must meet a minimum balance requirement to earn the full rate. To earn 2.02% APY, you must shift at least $2,000 from the checking side of the account to the “protected goals” savings side. If your balance drops below $2,000, you’ll earn 2.02% APY instead. The checking account earns a 2.02% APY, regardless of balance.

Chime vs Simple: Which has better account options?

With direct deposits, Chime eliminates the typical one- to two-day “electronic limbo” of waiting for paychecks to move via Automated Clearing House (ACH) from your employer’s bank to your account. Instead, Chime makes your paycheck instantly accessible in its Spending Account when your employer deposits it. This can be a great option for those who live paycheck to paycheck and need more immediate access to that money.

Chime’s Spending Account helps automate the savings process. Its Save When You Spend feature automatically rounds up your debit card transactions to the nearest dollar and transfers the extra balance to your Chime Savings Account. You can also choose to automatically set aside 10% of each paycheck towards savings.

Simple offers budgeting tools as well. You can allocate money kept in checking side of the account among expenses, savings and discretionary spending sub-accounts. The protected goals savings component includes multiple sub-accounts, called “savings goals,” letting you earmark funds for an emergency fund, college tuition or your next big vacation. For each goal, you set a total amount to save, a date to save it by and how often you want to transfer money from your Simple checking account. The app then automatically tops up the savings goals over time.

Simple also offers shared accounts for two users — Chime does not currently offer joint accounts. Shared accounts lets you and your partner manage money and save together using the tools outlined above. According to Simple, you can open a shared account with anyone, from your roommate to the person you just met at a hostel.

Chime vs Simple: How they compare on fees

 ChimeSimple
Account monthly fee$0$0
ATM fees$2.50 (out-of-network ATM fee/Over The Counter fee)$0
Overdraft fees$0$0

Simple is serious about charging zero fees. There are no monthly fees, no overdraft fees, and no foreign ATM fees. However, it’s still wise to stick to Allpoint ATMs when you can — Simple may not charge a fee, but the ATM owner still does, and Simple doesn’t reimburse ATM surcharges. You also pay Visa’s International Service Assessment (ISA) of 1% of the transaction amount if you use your Simple card internationally. As for overdrafts, your transaction will simply be declined if you try to make a purchase without sufficient funds.

Chime is only slightly less fee-free than Simple. It doesn’t charge fees for overdrafts, transactions, card replacements and more. However, if you use an ATM outside of the MoneyPass or Visa Plus Alliance networks or make an over-the-counter withdrawal, you’ll be charged a $2.50 fee. As with Simple, any overdraft transactions will be declined.

Without charging fees, these companies have to make money somehow, right? Both Chime and Simple make theirs by taking a percentage of the interchange fees from your debit card transactions at merchants (they divide the fees with the card issuer). Simple also makes money through the interest margin on deposits.

Who should bank with Chime?

Chime is useful if you find yourself needing access to your paychecks sooner than usual. Its early direct deposit model takes your money out of a bank holding pattern and puts it in your hands as soon as it’s deposited by your employer.

Chime is also a great option for customers who might have bad credit or a compromised banking history. Unlike many traditional banks, Chime doesn’t use ChexSystems, a consumer reporting agency that keeps track of any problems in your banking history. Instead, Chime opens the doors for customers with bad credit to help them get back on their feet through their essentially no-fee account model and automatic savings options.

Who should bank with Simple?

You should bank with Simple if you’re looking for a completely fee-free banking experience and the savings benefits of a high savings account rate. There are no fees, even for out-of-network ATM usage. And if you’re able to keep at least $2,000 stashed away toward savings goals, you’ll snag a competitive APY and grow your savings faster.

Alternatives

One alternative to Chime and Simple is Aspiration. Aspiration sets itself apart by offering “socially-conscious and sustainable” banking and investment products, and donates 10% of its customer-paid profits to American charities. It also operates on a Pay What Is Fair system, where its customers get to choose what to pay in monthly fees, even if it’s $0. You can use any ATM in the world without incurring a fee from Aspiration, which will also reimburse you for any ATM surcharges you rack up.

Its banking product is a cash management account called Aspiration Spend & Save. It earns 2.00% APY on the entire Save account. Even better, the Spend account earns 1% cash back on purchases at socially responsible businesses and 0.50% cash back at not-so-conscious businesses.

Another alternative is Empower, which operates strictly on its mobile app. Empower charges zero fees and provides an AI assistant to help you combine accounts, track spending and find savings. It earns some solid rewards, too, although its website language is slightly misleading in places. By default, using the Empower debit card earns 1% cash back on the first $1,000 you spend each month, and additionally, you’ll earn 2.15% APY on your savings account balance. However, you can snag a 30-day boost, increasing your cash back to 2% and earning you an additional 2.15% APY for every person you successfully refer to Empower.

Empower forgoes all fees, including ATM usage, service fees, overdrafts and more. Empower will also reimburse you for one out-of-network ATM fee per month. Otherwise, you can physically access your cash through MoneyPass ATMs.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Lauren Perez
Lauren Perez |

Lauren Perez is a writer at MagnifyMoney. You can email Lauren here

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