Key Takeaways
- FDIC insurance is the federal government’s protection for cash deposits at American banks.
- The FDIC insures deposits up to $250,000 per depositor, per bank.
- The FDIC insurance limit includes all checking accounts, savings accounts, money market accounts, CDs and some retirement accounts.
- If your bank fails, you likely won’t have to do much to gain access to your insured deposits.
What Is FDIC Insurance?
FDIC insurance is protection offered by the federal government for cash deposits held in recognized banking institutions. The Federal Deposit Insurance Corporation (FDIC) backs the cash held in banks all over the country to protect the country’s economic stability and the personal financial security of Americans who keep their money in those banks.
The FDIC’s insurance program is the core component of its mission to “maintain stability and public confidence in the U.S. financial system.” FDIC insurance protects deposits held at banks and savings institutions known as insured depository institutions (IDIs). If an IDI fails, the FDIC ensures that customers who had deposited funds at that bank can access their money in a timely manner.
The FDIC insures deposits up to a certain amount per depositor per bank. The types of accounts covered by FDIC insurance include checking, savings and money market accounts as well as certificates of deposit (CDs) and certain retirement accounts like IRAs.
How Much Does FDIC Insurance Cover?
FDIC insurance limit covers up to $250,000 per depositor, per bank. The coverage includes all the accounts someone has at that bank. A depositor could have a checking account, savings account and CDs all at one bank, and all those accounts together would only be insured up to $250,000.
For example, let’s say you have $100,000 in a checking account and another $100,000 in a savings account at the same bank. Your deposits are fully insured because they are under the $250,000 limit.
Now let’s say you open a CD at that bank and deposit another $100,000. Your total amount of deposits is only insured up to $250,000; so in this example, you could stand to lose $50,000 of your deposits if your bank fails.
Certain types of accounts might have slightly different coverage limits. Joint accounts, for instance, are insured up to $250,000 per co-owner, so an account with two listed owners can be insured up to $500,000.
FDIC Coverage Limits
| Account Ownership Type | Coverage Limit |
|---|---|
| Single Accounts (Owned by One Person) | $250,000 per owner |
| Joint Accounts (Owned by Two or More Persons) | $250,000 per co-owner |
| Certain Retirement Accounts (Includes IRAs) | $250,000 per owner |
| Revocable Trust Accounts | $250,000 per owner per unique beneficiary |
| Corporation, Partnership and Unincorporated Association Accounts | $250,000 per corporation, partnership or unincorporated association |
| Irrevocable Trust Accounts | $250,000 for the non-contingent interest of each unique beneficiary |
| Employee Benefit Plan Accounts | $250,000 for the non-contingent interest of each plan participant |
| Government Accounts | $250,000 per official custodian (more coverage available subject to specific conditions) |
Benefits of Having an Account With FDIC Protection
Putting your money into an FDIC-insured bank has a few big advantages. The first is the confidence that your cash deposits are secure and will not be lost if your bank fails.
This is especially important for those who house their emergency funds in a savings account. By keeping those cash savings stored in an insured bank, you can feel secure that you’ll have access to those funds in a crisis.
Another feature of FDIC-insured banks is the potential to earn higher interest rates or other perks. Greg Wilson, a Chartered Financial Analyst and co-owner of the financial lifestyle blog ChaChingQueen, told Annuity.org, “FDIC-insured banks are more likely to offer competitive interest rates and other benefits to attract customers.”
What To Do if Your Bank Fails
If your bank does fail, you probably won’t need to do very much to get your money back. As long as the bank is insured by the FDIC and your deposits don’t exceed the coverage limit, the FDIC will act quickly to protect your money.
In most cases, your assets will be transferred to a healthy bank or paid directly to you up to the insured limit. However, it’s more likely that another bank will assume the insured deposits. Once your funds have been transferred to the healthy insured bank, you’ll have the option to switch to a different bank of your choice.
Deposit payoffs are less common but can occur. If your bank fails and the FDIC chooses to pay back all the deposits, you should receive your money by check within a few days of the bank’s failure.
“If your deposits exceed the insured limit, you may still be able to recover some or all of your money, but it could take longer,” Wilson said. You’ll receive a check for the amount you are covered, up to $250,000.
For any excess amount, you’ll receive a claim against the failed bank’s estate. You can use this “Receiver’s Certificate” to try to get the rest of your balance back if the bank’s assets are liquidated.
Frequently Asked Questions About FDIC Insurance
Certain investment accounts, such as IRAs or self-directed 401(k)s, can be covered by FDIC insurance if they are held at an insured bank.
The FDIC does not protect against fraud or theft.
If you have accounts with multiple banks, you can deposit funds up to the $250,000 limit in each bank and still be fully covered by FDIC insurance.
Foreign banks are not eligible for FDIC insurance.
Editor Malori Malone contributed to this article.
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