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FDIC Insurance Coverage

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Updated 3/11/2016

FDIC Coverage

Despite a dramatic drop in the number of failures, the number of banks on the FDIC’s problem bank list remains a concern. Generally, a problem bank is defined as one considered to be in financial difficulty based on an analysis of various factors, including liquidity, capital levels, and asset quality.

As a result, the extent to which the FDIC insures various types of accounts continues to be a critical financial planning piece for retirees or those contemplating retirement, particularly if one’s life savings are deposited in one institution. This section updates the basic deposit insurance rules, as well as providing readers with resources necessary to determine how those rules apply to them

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Deposit Insurance Rules

 

The FDIC insures the following types of deposit accounts at banks and savings associations:

  • checking,
  • Negotiable Order of Withdrawal (NOW),
  • savings,
  • money market, and
  • certificates of deposit (CDs) up to the insurance limit. 

It is just as important to know that the FDIC does not insure the contents of safe deposit boxes or the money you invest in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if you purchased these products from an insured bank or savings association.  The National Credit Union Administration (NCUA) applies analogous rules and insurance limits to funds deposited in their insured institutions.

When President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act on July 21, 2010, the standard maximum deposit insurance amount permanently became $250,000. Previously, there had been a temporary increase from $100,000 to $250,000 starting on October 3, 2008.  In terms of basic bank accounts, this means that both a single account (one owner) and joint account (two or more owners) are insured up to $250,000 per owner. As a result, a married couple can keep a million dollars liquid and insured in a single bank by dividing up the money as follows: husband's single account with $250,000, wife's single account with $250,000, joint account with $500,000 ($250,000 each). There are some applicable intricacies.  For example, it is important to remember that a “single account” applies to all accounts held in one name only at the same institution.  Simply put, the assets of all checking, savings, or other accounts held in one name at the same bank are added together for insurance purposes.  This applies to “joint ownership” accounts as well, as long as the co-owners have equal rights to withdraw funds. 

IRAs, Retirement Accounts and Revocable Trusts

 

In addition to single and joint deposit accounts, the FDIC separately insures IRAs and certain other retirement accounts, such as 401 (k) plans and deferred compensation plan accounts.  As is the case with checking and savings accounts, all retirement accounts held by one owner in any of these retirement plans are added together for the purpose of applying the $250,000 insurance limit.  This limitation applies regardless of the existence of any named beneficiaries. 

In contrast, the number of beneficiaries generally determines the amount of insurance coverage for a revocable trust account; those beneficiaries may include individuals, charities, or non-profit organizations.  For example, the FDIC will insure a revocable trust account owned by a parent payable upon death to three children up to $750,000.  In this instance, the owner of the trust is not counted for the purpose of calculating insurance coverage. 

Treatment of CDs

The FDIC applies the same rules regarding single/joint accounts and insurance limits to funds deposited in certificates of deposit (CDs).  However, through a network of over 3,000 financial institutions known as the Certificate of Deposit Account Registry Service (CDARS), a single individual can deposit millions of dollars in CDs at one bank and enjoy FDIC insurance for the total amount.  This is accomplished through the distribution of the funds deposited in the CDs across the CDARS network.  Consequently, the principal and interest deposited in any one institution remain below the $250,000 insurance limit.  The only drawback is that the rate offered may be lower than what could be obtained by shopping for rates with competing institutions.

Please visit the FDIC’s website for a wealth of detailed information and examples regarding the types of accounts insured and the limits applied to those accounts.  You can also access an easy-to-use tool, EDIE The Estimator, to input your specific account information and determine the extent of your insurance coverage.

Use the following checklist and resources to determine your actual FDIC coverage at each bank that you have funds deposited. I used all of these resources and found them to be easy to use and very helpful. The EDIE Calculator allows you to enter all of your account information and registrations to show you exactly what is and isn’t covered at your bank. A great tool and I highly recommend using it to make sure your accounts are fully covered. 

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