Knowing the Limits of FDIC Insurance
Keep your money safe by maximizing coverage.
“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?
What is the FDIC?
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. During the 2008 housing crisis, the FDIC took control of failing banks, protecting billions of dollars in assets.
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.
Keep in mind that not every dollar is covered. The FDIC only insures bank deposits, including checking accounts, savings accounts, money market accounts and CDs.1 But it does not insure stocks, bonds, mutual funds or other equities. 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.
Understanding FDIC insurance limits
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. In short, the agency covers up to $250,000 per person per account.2 But it’s not just the type of account that matters—it’s whose name is on it.
Let’s say you have $100,000 in your checking account and $150,000 in your savings, all at the same bank. You’ve hit your FDIC deposit limit. Every additional cent deposited into either account is uninsured. But with a little planning, you can be covered for much more.
Maximizing FDIC limits
Just because there are limits doesn’t mean you have to drive around town opening accounts at different banks to protect your savings. It just means you have to be strategic about the accounts you open.
Say you have much more than $250,000. Yes, you can only have deposits up to $250,000 insured at a single bank, but there are 3 additional ways you can open accounts to insure more money. If you share your finances with a spouse or significant other, they can deposit up to $250,000 of their own money, giving you $500,000 of insured deposits. You can also open 2 individual retirement accounts with $250,000 in each. If you take advantage of all 4 options, it adds up to $1 million in FDIC-insured accounts, all at the same bank.
Joint accounts fall into a separate category, and they carry a $500,000 limit. That means you and your spouse could open an additional account—say, a joint savings account—at the same bank as your individual savings accounts and your retirement accounts, giving you a total of $1.5 million FDIC-insured dollars in your nest egg.
Then there are trusts. A trust is a unique legal entity—almost like a company—that is controlled by one person on behalf of another, usually a parent for a child or children. If a bank account is opened in a trust’s name, rather than an individual or couple, the FDIC insurance can grow far beyond that $250,000 limit.
The rules vary, but generally speaking, the more people involved in a trust, the more money the FDIC insures. For example, in some trusts, the limit is calculated by multiplying the number of trustees (people who manage the assets in the trust) by the beneficiaries (person or people who will receive the trust assets),3 and multiplying that number by the $250,000 limit. That means a trust set up by 2 parents for their 3 kids is insured for up to $1.5 million (2 parents times 3 kids is 6; $250,000 times 6 is $1.5 million).
With individual accounts, joint accounts, retirement accounts and trusts, your FDIC-insured deposits can really add up.
Other ways to protect your savings
Of course, not everyone has a spouse or needs a trust or retirement account. But there are other ways to protect your deposits. Ask your bank if it offers additional insurance. The Depositors Insurance Fund protects all deposits in excess of FDIC limits at all banks chartered in Massachusetts—and you don’t have to be a Massachusetts resident to open account.4 Many banks offer the Certificate of Deposit Account Registry Service, which insures CDs beyond FDIC limits.5
Bank failures are uncommon, and they mostly happen at small local or regional banks. But you can count on the FDIC to do its job and insure your money. (The FDIC even offers a handy calculator to help maximize your insurance.)6 And now that you know the rules, there’s no reason to let that insurance stop at $250,000 if you don’t have to. With a little planning, you could be covered for much more.
This site is for educational purposes. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.
FDIC Deposit Overview (n.d.). Retrieved January 16, 2018, from: https://www.fdic.gov/deposit/
Federal Deposit Insurance Corporation. (n.d.). Retrieved January 26, 2018, from: https://www.fdic.gov/deposit/deposits/faq.html
Understanding The Duties and Responsibilities of a Trustee. (n.d.). Retrieved January 26, 2018, from: https://www.estateplanning.com/Duties-and-Responsibilities-of-a-Trustee/
DIF - Depositors Insurance Fund (n.d.). Retrieved January 26, 2018, from: https://www.difxs.com/DIF/Home.aspx
Certificate Deposit Account Registry Services (CDARS) (n.d.). Retrieved January 26, 2018, from: https://www.capitalbank-us.com/business/treasury-management/certificate-deposit-account-registry-services-cdars/
FDIC Insurance Calculator (n.d.). Retrieved on April 13, 2020, from: https://edie.fdic.gov/calculator.html