Knowing the limits of FDIC insurance

F-D-I-C. These 4 letters swim through your ears every time an advertisement for a bank flashes on your TV or sings from your car stereo. But what is the FDIC? What does the FDIC do? How does it keep your money safe? And most importantly, what can you do to make sure you’re maximizing those safeguards?

FDIC stands for Federal Deposit Insurance Corporation. It was formed in the 1930s in response to the banking crashes that accompanied the Great Depression. It’s designed to keep America confident in its banks, but it also provides real-world safeguards for your money by doing precisely what its name implies: insuring your bank deposits.¹ During the 2008 housing crisis, the FDIC took control of failing banks, protecting billions of dollars in assets.²

Just like you pay car insurance premiums, American banks pay premiums to the FDIC. The FDIC in turn uses that money, plus other federal funds, to repay customers if a bank fails. The agency insures most American banks, making it responsible for trillions of dollars in deposits. It also regulates those banks, monitoring their health in an effort to avoid collapse.¹

The FDIC insures several categories of deposit accounts. That includes what the agency calls single accounts, which covers checking accounts, savings accounts, money market accounts and certificates of deposit (CDs).³ But investments like stocks, bonds, mutual funds and other equities are not covered.⁴

The FDIC also limits how much money can be insured in a given account, meaning there are limits to what you can be paid back in the unlikely event that your bank closes. By getting to know the FDIC limits and how they work, you'll have the know-how to make the system work for you.

The FDIC wants to make sure it can cover everyone with a bank account, so to make that happen, it caps how much money it insures. The FDIC says its standard is to cover up to “$250,000 per depositor, per insured bank, for each account ownership category.¹ 

Here’s an example: Let’s say you have $100,000 in your checking account and $150,000 in your savings, all at the same bank. The FDIC classifies those under the same category: single accounts.⁴ So you would have hit your FDIC deposit limit. Every additional cent deposited into either account would be uninsured. But if you have money in other banks or other deposit categories, you may have additional coverage.

Other categories

The FDIC also insures categories other than single accounts. Those categories include joint accounts, certain retirement accounts, trust funds, business accounts and government accounts. You can learn more about the FDIC account categories on the agency’s website.

Bank failures are unlikely.⁵ But you can count on the FDIC to do its job. It even offers a handy tool to help you calculate your insurance coverage. If you find your accounts go beyond the FDIC’s coverage limits, consider asking your bank if it offers additional insurance or talking to an expert about what you can do.