What Is FDIC Insurance and What Are the Coverage Limits?

What Is FDIC Insurance and What Are the Coverage Limits? With FDIC insurance, your money held in a bank is protected by the federal government if your bank fails. But there are coverage limits.

FDIC insurance, provided by the Federal Deposit Insurance Corporation, safeguards depositors’ funds in banks and savings associations in the United States. It ensures that if a bank faces financial trouble or fails, eligible accounts are protected up to $250,000 per depositor, per insured bank, for each account ownership category, for individuals and businesses.

Key takeaways about FDIC insurance

  • If your federally insured bank fails, Federal Deposit Insurance Corp. insurance keeps your money safe.
  • The FDIC insures up to $250,000 per depositor, per institution and per ownership category.
  • FDIC insurance covers deposit accounts and other official items such as cashier’s checks and money orders.
  • If a bank is federally insured, it will have the FDIC insurance logo on its website.

Your money is secure and reliable with banks. Nevertheless, recent history has served as a reminder that these institutions are subject to failure, which would imply that they would be unable to fulfil their responsibilities to those who had deposited money with them or to those who they had lent money to. Continue reading to find out more about what occurs when a bank collapses.

Customers’ funds are safeguarded in the unlikely event that a bank collapses as long as the institution is federally insured. The Federal Deposit Insurance Corporation is the supporter of a bank that is federally insured. Through the National Credit Union Administration, credit unions also provide protection. Up to $250,000 is insured by the FDIC for each depositor, each institution, and each ownership type. Only when a bank collapses does FDIC insurance begin to pay out.

What it means to have FDIC insurance

If your bank collapses, your money is protected up to a specific amount thanks to FDIC protection. In reaction to the numerous bank failures that occurred during the Great Depression, the FDIC was founded in 1933. It was established to provide customer deposit insurance and boost public trust in the banking sector. Due to the Great Recession, dozens of banks failed. First Republic Bank (California), Silicon Valley Bank (California), Signature Bank (New York), and Almena State Bank (Kansas) all declared bankruptcy in 2023. In 2020, Ericson State Bank (Nebraska), The First State Bank (West Virginia), First City Bank of Florida, and Silicon Valley Bank (California) also declared bankruptcy. Nevertheless, since the FDIC was established, not a single cent of insured savings has been lost.

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Banks are not automatically insured. They submit an application for FDIC insurance, which, like other insurance, has a fee. However, neither you nor your taxes are used to cover the cost. Premiums are paid by the bank.

FDIC insurance: What’s Covered?

FDIC (Federal Deposit Insurance Corporation) insurance is a critical component of ensuring the safety and security of your hard-earned money held at banks and savings associations in the United States. It provides a safety net that guarantees the protection of your deposits in case the financial institution faces difficulties or goes out of business. Understanding what FDIC insurance covers is essential for making informed financial decisions and maintaining your peace of mind. Here’s a comprehensive overview of what FDIC insurance covers:

1. Deposit Accounts: FDIC insurance covers a range of deposit accounts commonly held by individuals and businesses, including:

  • Savings Accounts: These accounts are intended for individuals to save money while earning interest. FDIC insurance covers the balances held in these accounts.
  • Checking Accounts: Everyday transactional accounts are also covered by FDIC insurance. These accounts allow you to write checks, use debit cards, and make electronic transfers.
  • Certificates of Deposit (CDs): These accounts offer higher interest rates in exchange for locking your money in the account for a specified period. The principal and accrued interest are insured by the FDIC.
  • Money Market Deposit Accounts (MMDAs): Similar to savings accounts, MMDAs typically offer higher interest rates and limited check-writing capabilities. FDIC insurance covers the funds held in these accounts.
  • Individual Retirement Accounts (IRAs): Traditional and Roth IRAs are retirement accounts that often hold various types of investments. While FDIC insurance does not cover changes in investment value within IRAs, it does cover the cash held within these accounts, ensuring that your retirement savings are secure.

2. Account Ownership Categories: FDIC insurance coverage extends across various ownership categories to ensure that each account holder receives adequate protection:

  • Single Accounts: These are accounts held by one person. Each individual account holder is insured up to $250,000 per bank.
  • Joint Accounts: Accounts held by two or more people are jointly insured up to $250,000 per co-owner. Each co-owner’s share is protected up to the coverage limit.
  • Revocable Trust Accounts: These accounts include living trusts where the account owner retains the right to revoke the trust. Each beneficiary of the trust is insured up to $250,000, and coverage is determined by the number of beneficiaries and the ownership structure.
  • Irrevocable Trust Accounts: These accounts are set up when the account owner cannot change the terms of the trust without the beneficiary’s permission. Each beneficiary’s interest in the trust is insured up to $250,000.
  • Retirement Accounts: IRAs and other retirement accounts are insured up to $250,000 per account holder. Different types of retirement accounts, such as Traditional IRAs and Roth IRAs, are considered separate ownership categories.

3. Insured Banks: FDIC insurance covers deposits held at FDIC-insured banks and savings associations. You can verify an institution’s FDIC insurance status by checking its official website, contacting the FDIC directly, or looking for the FDIC logo displayed at the bank’s premises.

4. Types of Coverage: FDIC insurance provides comprehensive coverage for various types of deposits, ensuring that you can trust your financial institution to safeguard your money:

  • Principal: The principal amount you deposited is fully insured up to the coverage limit, which is $250,000 per depositor, per insured bank, for each account ownership category.
  • Interest: Interest earned on your deposits is also covered by FDIC insurance. This ensures that the total balance, including accrued interest, remains protected.
  • Combined Accounts: If you have multiple accounts at the same bank, such as a savings account and a CD, the balances of these accounts are aggregated for insurance purposes. As long as the total balance across these accounts is within the coverage limit, your funds are fully insured.

5. Temporary Increase in Coverage: FDIC insurance provides temporary full coverage for non-interest-bearing transaction accounts. These accounts include certain business transaction accounts and accounts used by governments and municipalities. During periods specified by the FDIC, these accounts are insured without any limit.

FDIC insurance: What’s not covered

While FDIC insurance provides vital protection for your deposits at banks and savings associations, it’s important to understand that there are limitations to what the insurance covers. Being aware of these limitations can help you make informed decisions about managing your finances and safeguarding your assets. Here’s a breakdown of what FDIC insurance does not cover:

  1. Investment Losses: FDIC insurance is specifically designed to protect the money you have on deposit at banks. It does not cover losses incurred from investments in stocks, bonds, mutual funds, or other securities. If you invest in the stock market or other financial instruments and experience losses, those losses are not covered by FDIC insurance.
  2. Non-Deposit Products: Some banks offer non-deposit investment products, such as annuities, mutual funds, and life insurance policies. These products are not covered by FDIC insurance. While they might be sold by the bank, they are separate from your deposit accounts and carry their own set of risks.
  3. Safe Deposit Boxes: FDIC insurance does not extend to the contents of safe deposit boxes. Items stored in safe deposit boxes, such as important documents, jewelry, or other valuables, are not insured by the FDIC. However, these items might be covered by your homeowner’s insurance or a separate insurance policy.
  4. Contents of Retirement Accounts: While FDIC insurance covers certain types of retirement accounts, such as Traditional and Roth IRAs, it does not cover losses resulting from changes in the value of the investments held within these accounts. For example, if you have a self-directed IRA that invests in stocks or other securities, the value of those investments is subject to market fluctuations and is not insured by the FDIC.
  5. Deposits Above Insurance Limits: FDIC insurance has coverage limits, typically up to $250,000 per depositor, per insured bank, for each account ownership category. If you have deposits exceeding these limits at a single institution, the excess amount is not covered by FDIC insurance. It’s crucial to be mindful of these limits and consider spreading your deposits across multiple insured banks if needed.
  6. Foreign Deposits: While some U.S. banks have branches or subsidiaries overseas, FDIC insurance only applies to deposits held in domestic institutions. Deposits in foreign banks are not covered by the FDIC. However, they might be protected by equivalent insurance programs in the respective country.
  7. Fraudulent Activities: FDIC insurance does not cover losses resulting from fraudulent activities, such as identity theft, scams, or unauthorized transactions. It’s essential to practice vigilant security measures and promptly report any suspicious activities to your bank.
  8. Business Accounts: While FDIC insurance does apply to certain types of business accounts, coverage is determined by specific rules for business deposits. Different business structures and account types might affect the coverage limits and eligibility for insurance.
  9. Government Accounts: Certain types of government accounts, such as those held by state and local governments or agencies, might not be covered under FDIC insurance. Instead, these accounts could be protected by separate government insurance programs.

How To Check That All Money In Your Accounts Is Insured?

Ensuring that all the money in your accounts is properly insured is a critical aspect of financial security. The Federal Deposit Insurance Corporation (FDIC) in the United States offers deposit insurance coverage for eligible accounts up to certain limits, protecting your funds in the event of a bank failure. To check that all your money is insured, follow these steps:

  1. Understand FDIC Insurance Limits: To effectively determine whether your money is fully insured, it’s essential to grasp the FDIC’s insurance limits. As of my knowledge cutoff in September 2021, the standard insurance coverage is up to $250,000 per depositor, per insured bank, for each account ownership category. Different account ownership categories include individual accounts, joint accounts, revocable trust accounts, retirement accounts, and more. Any money you have above this limit at a single bank might not be fully insured.
  2. Review Your Account Types: Identify the types of accounts you hold at your bank, such as savings accounts, checking accounts, certificates of deposit (CDs), and retirement accounts (like IRAs). Each account type falls into specific ownership categories, affecting the overall insurance coverage.
  3. Calculate Account Balances: Take stock of the balances in each account category at your bank. Add up the money in individual accounts, joint accounts, trust accounts, retirement accounts, and any other account types you might have. Ensure that the total doesn’t exceed the FDIC insurance limit for each category.
  4. Account for Different Institutions: If you have accounts at multiple banks, the FDIC insurance limit applies separately to each institution. For example, if you have $250,000 in an individual account at Bank A and $250,000 in an individual account at Bank B, both of these amounts are fully insured. The limits are per insured bank, not per account.
  5. Use the FDIC’s Online Calculator: The FDIC offers an online Electronic Deposit Insurance Estimator (EDIE) calculator that helps you determine your deposit insurance coverage. You can input information about your accounts, ownership types, and institutions to get an estimate of your insured funds. This tool can be particularly helpful when you have complex account ownership arrangements.
  6. Contact the FDIC: If you’re uncertain about your coverage or have questions, you can contact the FDIC directly. Call their toll-free hotline at 1-877-ASK-FDIC (1-877-275-3342) to speak with a representative who can provide guidance and clarify any doubts you may have.
  7. Consult Your Bank: Your bank should be well-informed about FDIC insurance and can assist you in understanding how your accounts are insured. Reach out to the bank’s customer service department or visit a local branch to discuss your accounts and insurance coverage.
  8. Review Account Documents: Account statements and documents from your bank should outline the insurance coverage for each account type. Carefully review these materials to confirm that the amounts stated align with your understanding of FDIC limits.
  9. Check for the FDIC Logo: Banks that are FDIC insured usually display the FDIC logo prominently on their premises, including at branch entrances and customer service areas. This logo serves as a visual indicator of the bank’s insured status.
  10. Monitor Account Changes: As your financial situation evolves, regularly reassess your accounts and their balances. Changes such as deposits, withdrawals, or interest accrual can impact your coverage. Make adjustments as needed to ensure your money remains within the insured limits.
  11. Consider Joint Accounts: Joint accounts often receive separate insurance coverage. For instance, if you have a joint account with your spouse, you each could be insured up to the coverage limit for individual accounts and the coverage limit for joint accounts.
  12. Review Trust Accounts: Trust accounts can be complex, so it’s wise to consult with your bank and, if necessary, a legal or financial advisor. The FDIC offers specific guidelines for insurance coverage on revocable trust accounts, irrevocable trust accounts, and other trust arrangements.
  13. Stay Informed: Keep yourself updated about changes in FDIC regulations or limits. The information might change over time, and staying informed ensures that you continue to enjoy the full protection of FDIC insurance.

In summary, safeguarding your money by ensuring its fully FDIC insured requires understanding coverage limits, categorizing accounts properly, using online tools and calculators, contacting the FDIC and your bank, and regularly reviewing your accounts. By following these steps, you can rest assured that your hard-earned money is protected within FDIC insurance limits. Always remember that financial regulations and information might evolve, so staying informed is key to maintaining your financial security.

What happens when a bank fails

A bank regulator shuts the institution if it fails, for example by being unable to repay debts or restore client deposits. In general, the FDIC intervenes to protect bank customers’ cash in two ways: by paying (or granting access to) monies to impacted consumers up to the insurance limit and by taking over the bank’s assets and liabilities. In the second position, the FDIC assumes the title of “receiver” of the bankrupt bank in order to manage insured deposits, sell or collect assets, and pay obligations. Usually, the FDIC makes arrangements for a strong bank to buy out a failing one.

San Francisco-based First Republic Bank declared bankruptcy on May 1, 2023. JPMorgan Chase Bank will take over all deposits and the majority of the assets of the California bank since the FDIC was able to arrange a sale of the large commercial bank prior to its liquidation. First Republic’s 84 locations will all reopen as Chase locations, and all of the bank’s clients will transfer to Chase and have access to all of their deposits. Their cash will continue to be federally insured.

The fall of First Republic Bank in 2023 will be the third prominent bank failure. Silicon Valley Bank, a lender to the tech sector, fell on March 10 in Santa Clara, California, while Signature Bank in New York failed two days later. In both instances, the FDIC temporarily established “bridge banks” to keep the assets and deposits of the previous institutions while it waited to sell the banks. The Treasury, Federal Reserve, and FDIC announced in a joint statement on March 12 that all clients of Silicon Valley Bank and Signature Bank would have access to all of their savings, insured and uninsured. That didn’t include certain unsecured loan holders and stockholders. Flagstar Bank purchased Signature Bank on March 20 while First Citizens Bank bought Silicon Valley Bank on March 26.

The Federal Reserve launched a new programme on March 12 that provides loans of up to one year to banks and credit unions as an additional precaution against future crises. The goal of the Bank Term Funding Programme is to offer a second source of funding so that banks won’t have to swiftly sell off investments, as Silicon Valley Bank did to satisfy depositors.

Despite occasional rises during and after a recession, very few banks really collapse. There have been 564 bank failures since 2001, the many of which were brought on by the recession that lasted from 2007 to 2009. As of December 2022, there were around 4,700 banks that were FDIC-insured. Since October 2020, three banks have failed: Silicon Valley Bank, Signature Bank, and First Republic Bank.

Per depositor, per institution: This indicates that the FDIC covers deposits that a single individual (the depositor) has in a single insured bank (the institution), apart from any deposits that person may possess in additional, distinct insured banks. Deposits owned by a person in many branches of the same insured bank are added up to reach the $250,000 cap.

Per ownership category: The account’s owner is simply referred to as the ownership category. The distinction between a single account, which belongs to one person alone, and a joint account, which is shared by two or more individuals, is the simplest. Some retirement accounts, such as IRAs, trust funds, and accounts for employee benefit plans are among the other forms of ownership.

Money that falls under several ownership classifications has its own coverage. Therefore, if monies are in accounts with various ownership categories and other conditions are satisfied, a person with numerous accounts at an insured bank may be eligible for coverage of more than $250,000. Additionally, if two persons jointly possess an account, for instance, that account is protected up to $250,000 per person, for a total of $500,000.

Examples of FDIC insurance limits and coverage

Consider some examples to understand the limits of FDIC coverages.

1. You’re single, do your banking in one place and you have:

  • $50,000 in a checking account.
  • $100,000 in a savings account.
  • $200,000 in certificates of deposit.

That’s a total of $350,000 deposited in one bank as one depositor (you), at one institution (your bank) and in one ownership category (single). If your bank were to fail, you’d lose $100,000 because the FDIC would cover only up to $250,000.

Don’t fret, though, because the next-most important thing to know about FDIC coverage is that you can be insured for much more depending on where you keep your accounts and how they are owned. One way to make sure all of your money is insured is to spread it across multiple institutions. Consider the next example.

» MORE: When to consider a joint bank account

2. You’re single but you do your banking at two banks, and you have:

  • $50,000 in a checking account at Bank 1.
  • $200,000 in a savings account at Bank 1.
  • $250,000 in certificates of deposit at Bank 2.

That’s a total of $500,000 deposited as one depositor (you) at two institutions (two banks) and in one ownership category (single). Since you have $250,000 at one bank and $250,000 at another bank, all of your money is protected.

Take a look at one more example of how different ownership categories affect how your money is insured.

3. You’re married, you both do your banking at the same place and together you have:

  • $500,000 in a joint savings account shared with your spouse.
  • $250,000 in a certificate of deposit in just your name.

That’s a total of $750,000. All of this money is protected. The joint savings account is one ownership category (joint), where both you and your spouse are covered up to $250,000 each since you are two different depositors. The certificate of deposit is in a second ownership category (single), so the depositor (you) is covered up to $250,000 for that account.

There are too many combinations to cover them all here. Just know that you have options to make sure all of your money is insured. If you’re in danger of bumping up against or exceeding the $250,000 limit at any one institution, consider spreading your money across multiple banks so that all of your funds are insured.

How to find out if your bank is FDIC insured

Finding out if your bank is FDIC insured is a crucial step in ensuring the safety of your hard-earned money. The Federal Deposit Insurance Corporation (FDIC) is a U.S. government agency that provides insurance coverage for deposits at participating banks and savings associations, up to certain limits. This insurance protects your funds in case the bank faces financial difficulties or goes out of business. Here are the steps you can take to determine if your bank is FDIC insured:

  1. Check the Bank’s Website: The easiest and most reliable way to determine if your bank is FDIC insured is by visiting the bank’s official website. Most banks prominently display the FDIC logo or provide information about their FDIC insurance status on their homepage. Look for a section that discusses deposit insurance or regulatory information.
  2. Search the FDIC’s Online Database: The FDIC maintains an online database called the “BankFind” tool, which allows you to search for information about FDIC-insured banks and institutions. To use this tool, visit the FDIC’s official website and navigate to the “BankFind” section. You can search using the bank’s name, location, or other relevant details.
  3. Contact the Bank Directly: If you’re unable to find the information on the bank’s website or through the FDIC’s database, you can contact the bank’s customer service or visit a local branch. Ask a bank representative if the institution is FDIC insured and request any documentation or confirmation they can provide.
  4. Look for FDIC Signs: Physical bank branches are often required to display signage indicating their FDIC insurance status. When you visit a branch, look for the FDIC logo or posters that mention FDIC insurance coverage. These signs are typically placed near the entrance or in customer service areas.
  5. Read Account Documents: When you open a new account with a bank, the account documents should contain information about the bank’s FDIC insurance coverage. Review the terms and conditions, account agreement, or any disclosure documents provided by the bank to find this information.
  6. Check Bank Statements: Many banks include a statement on their periodic account statements indicating that the bank is FDIC insured. Review your account statements for any such information.
  7. Use the FDIC’s Call Center: The FDIC also operates a toll-free call center that you can contact to verify a bank’s FDIC insurance status. You can call 1-877-ASK-FDIC (1-877-275-3342) to speak with a representative who can provide you with information about the bank’s insurance coverage.
  8. Consult Financial Regulatory Websites: In addition to the FDIC, there are other regulatory bodies that oversee financial institutions. For example, the Office of the Comptroller of the Currency (OCC) regulates national banks. You can visit the OCC’s website to search for information about the bank’s regulatory status and insurance coverage.

To find out whether your deposits are federally insured, search for your bank on the FDIC’s BankFind tool. You can also look for the FDIC insurance logo on the bank site. Displaying this logo is a requirement for insured banks. You can check the FDIC site to see how the official logo should appear.

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