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FDIC Insurance: Explained

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.

FDIC stands for the Federal Deposit Insurance Corporation. The FDIC insures the money in deposit accounts up to $250,000 per ownership category. You want your bank to be FDIC-insured to guarantee the money you keep in your accounts will be available to you should the bank fail.

FDIC history

The FDIC was established in response to the Great Depression by the Glass-Steagall Act. During the time period between the Civil War and the establishment of the FDIC in 1933, bank runs were a common occurrence.

You may be familiar with bank runs from watching the movie “It’s a Wonderful Life.” Essentially, people would get scared that their deposits were going to be lost to bad investment decisions by their bank. The panic would spread quickly, and result in a rush of customers trying to liquidate their deposit accounts. The Glass-Steagall Act successfully ended these bank runs by guaranteeing that if your money wasn’t available for liquidation at your bank, your money would still be returned to you via the FDIC insurance fund.

To this end, it has been wildly successful. Coverage started at $2,500, but has grown with the times to $250,000 per ownership category. Since the FDIC was officially opened in January 1934, depositors have not lost any money from their deposits at FDIC-insured financial institutions.

NCUA vs. FDIC insurance

FDIC insurance covers deposits in banks across the country, but it does not insure deposits at credit unions. That’s why the National Credit Union Insurance Fund, administered by the National Credit Union Administration (NCUA), was established in 1970.

However, the NCUA does not insure deposits at all credit unions. Federal credit unions must be NCUA members, but state-chartered credit unions only participate if they choose to do so. You can find out if your credit union is federally insured by looking for the NCUA logo on its site or at one of its branches.

What the FDIC insurance limit covers

The FDIC insures up to $250,000 per ownership category per person within a singular financial institution. There are 14 ownership categories. While you are unable to qualify for each and every ownership category, this does allow you to qualify for more than $250,000 worth of insurance as an individual.

The ownership categories for FDIC insurance are:

  • Single accounts
  • Joint accounts
  • Revocable trust accounts
  • Irrevocable trust accounts
  • Specific retirement accounts
  • Employee benefit plan accounts
  • Business/Organization accounts
  • Government Accounts
  • Mortgage servicing accounts
  • Irrevocable trusts with the financial institution as the trustee
  • Annuity contract accounts
  • Public Bond accounts
  • Custodian accounts for Native Americans
  • Accounts established in compliance with the Bank Deposit Financial
  • Assistance Program of the Department of Energy

What types of accounts does the FDIC insure?

FDIC coverage extends to many different kinds of accounts. Checking, savings, CDs and money market accounts are all included in these ranks. So are Health Savings Accounts (HSAs), custodial accounts, traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, self-directed 401(k)s, self-directed defined benefit plans whether they are money purchasing plans or profit-sharing plans, self-directed Keogh plans and Section 457 deferred compensation plans.

Defined benefit and contribution plans are also covered, along with employer-administered welfare plans, business deposit accounts, mortgage servicing accounts, annuity contract accounts and deposit accounts held by the Bureau of Indian Affairs to benefit Native Americans.

Remember that the FDIC max of $250,000 does not apply to each individual account, but rather to all accounts held within an ownership category.

What is not covered by FDIC insurance?

Not every account you can open at a bank qualifies for FDIC insurance. Annuities, mutual funds, stocks, bonds, government securities, municipal securities and U.S. Treasury securities all top the list of uninsurable products you may find at your bank.

Items kept in safe deposit boxes are also not covered. If your bank gets robbed or experiences a natural disaster resulting in loss of money, the FDIC will not cover the losses, though your bank will eat the loss rather than passing on the misfortune to you. Banks actually buy separate bonds as insurance policies for these situations.

FDIC regulations for deposit accounts

Because there are 14 separate ownership categories, you can have much more than $250,000 in insurable funds at any given FDIC-insured institution. The most basic way to understand this is the single account category, where all the accounts held in your name — either directly or via custodian or fiduciary — can only add up to $250,000. If you are a sole proprietor and have an account under a DBA, those funds will also count toward the single account limit.

Joint accounts with two account owners can be insured up to $500,000. The more account holders there are, the more insurance will be provided in increments of $250,000 worth of insurance per account holder. This limit includes money held in all joint deposit accounts, including DBA accounts with multiple owners, but does not include money held in single accounts.

Revocable trust accounts include accounts which either have a legal document drawn up by a lawyer designating them as a part of a revocable trust, or simply bank accounts in which you have set up to have beneficiaries upon your death. The first five beneficiaries receive $250,000 in coverage each, but if you have more beneficiaries the math gets a little more complicated.

You can use the FDIC’s Electronic Deposit Insurance Estimator to figure out your coverage amounts.

If you have an irrevocable trust which you can withdraw funds from in certain circumstances, the portion that you keep interest in will be counted toward the single account category. If you are a beneficiary and there are no contingencies placed on you receiving the money, the funds will also count toward your single account category. However, if the owner places contingencies on you receiving the money, like getting married or going to college prior to the funds being distributed to you, they will count toward the irrevocable trust category and be insured up to $250,000 per beneficiary.

If you have an irrevocable trust with you bank as the trustee, its funds will count toward the accounts held by a depository institution as the trustee of an irrevocable trust category, which is separate from the irrevocable trust category.

Certain retirement accounts include traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, self-directed 401(k)s, self-directed defined benefit plans, self-directed Keogh plans and Section 457 deferred compensation plans. Your category total for these plans is $250,000 regardless of the number of beneficiaries.

If you have a retirement plan through your employer which is administered by a third party, it will count toward your employee benefits plan account limit of $250,000. Examples of these accounts include pensions, 401(k)s and Keogh plans.

If you are Native American and have the Bureau of Indian Affairs (BIA) acting as a fiduciary on your behalf, the money held in these accounts are insured up to $250,000. If you hold a personal account as a Native American which is not administered by the BIA, it will not be in this category. Instead, it will count toward your single account limit.

As an individual, the other categories don’t apply to you. Rather, they apply to businesses, insurance companies and in some cases even the bank itself.

How to maximize FDIC insurance

One of the best ways to maximize your FDIC insurance is by taking advantage of the fact that your money can be held across many different categories. Irrevocable trusts are a particularly efficient way to do this as coverage can be extended to many beneficiaries, but you don’t necessarily have to distribute your funds equally upon your death, explains Ken Tumin, founder of DepositAccounts.com, another LendingTree-owned site.

“Sometimes someone might want to insure $1 million at one bank,” Tumin told MagnifyMoney. “You might do that with an irrevocable trust with four beneficiaries. But if you want to keep a majority of the money yourself, you don’t want to put beneficiaries on it. You can create a workaround by establishing one beneficiary who will get most of the money like your spouse, while the three others will receive a smaller amount. That way, you can get your coverage up to the full million.”

He also notes that some financial institutions offer deposit sweep programs, in which the money you deposit into your accounts at one financial institution is effectively spread across several financial institutions. You interact only with your bank, but behind the scenes, they’re spreading out your money so you can get the full $250,000 worth of insurance with each different financial institution your money is technically held within. Two prolific programs include the Certificate of Deposit Account Registry Service (CDARS) for certificates of deposit and Insured Cash Sweep (ICS) for money market and checking accounts.

Tips for keeping your money safe with FDIC insurance

Do not assume that any financial institution has FDIC insurance. In order to verify that your bank participates, use this handy tool.

Some financial institutions offer private deposit insurance. This is especially true in the realm of state-chartered credit unions, but some banks do it, too. Most notably, the state of Massachusetts has several private insurance funds which can insure funds in excess of FDIC coverage limits. The important thing to remember with these private insurers is that funds are not guaranteed by the federal government as they would be with FDIC- or NCUA-insured accounts.

Aside from making sure your financial institution actually has federal insurance policies, one of the best things you can do to protect your money is to make sure you understand the intricacies of the category rules. If you’re feeling overwhelmed, you can use the FDIC’s Electronic Insurance Deposit Estimator (EDIE) to figure out how to best allocate your money to maximize your insurance coverage.

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.

Brynne Conroy
Brynne Conroy |

Brynne Conroy is a writer at MagnifyMoney. You can email Brynne here

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Banking

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
James Ellis |

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

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Banking

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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