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A market-linked certificate of deposit (MLCD) tracks a basket of underlying securities, or an index, such as the S&P 500. They differ from traditional certificates of deposit (CDs), which generally pay a fixed rate of interest. These accounts are sometimes called equity-linked CDs or market-indexed CDs.

A market-linked CD is similar to a traditional CD in that it’s a time-deposit account with a fixed term, during which the investor’s funds are unavailable. The principal is federally insured by the Federal Deposit Insurance Corporation (FDIC). But market-linked CDs come with some risks, including the possibility of zero gains at maturity.

What Is a Market-Linked CD?

A market-linked CD tracks an underlying index or collection of securities, rather than paying a fixed rate of interest. When investing in traditional CDs, the CD investor can deposit their funds for a specified term (typically a few months to a few years), and generally count on a steady rate of return until the CD reaches maturity.

Traditional CD’s total return is unlikely to be high, especially when comparing deposit accounts, because it’s based on current interest rates, but there’s little to no market risk. Certificates of deposit are federally insured, whether by a bank or a credit union, for up to $250,000 per depositor, per account ownership category, per insured financial institution. For this reason, traditional CDs are considered a fairly low-return, low-risk investment.

Market-linked CDs share some of these features, e.g., the investor deposits funds for a set period of time (often between one to seven years), and the funds are unavailable until the CD matures. But the returns of an MLCD are, as the name suggests, linked to the stock market, which adds in a layer of potential reward, but also potential risk.

Unlike traditional CDs, which are considered cash equivalents, market-linked CDs are bank deposits with a return profile similar to securities. The reason for creating market-linked CDs goes back to the days when banks couldn’t sell securities, and these products offered investors a workaround.

How Do Market-Linked CDs Work?

Unlike traditional CDs, market-linked CDs don’t offer fixed interest payments. Rather, the return is based on the underlying investments or market index that the CD tracks. Some of these market benchmarks include equity, commodity indexes, or a basket of commodities or currencies. But investors don’t see precisely the same gains and losses as the market.

Typically, the upside of MLCDs is capped in one of two ways:

•   Participation rate: This determines the percentage of market gains you receive. For example, an 80% participation rate means you receive only 80% of the gains from the underlying market.

•   Interest cap: This sets a maximum limit on the total return, regardless of how well the underlying market performs.

Fortunately, the principal amount deposited in the CD is protected if it’s held until maturity, at which point investors will get their full deposit back. But if the market underperforms, the CD may not have any gains. In other words, at maturity, there’s no guarantee your return will be more than your deposit amount.

Recommended: How Do CD Loans Work?

How to Calculate the Return of a Market-Linked CD

To calculate the return of a market-linked CD, financial institutions may average out the closing price of the underlying index over a certain period of time. For this method, you may receive the average of the index’s different values over a six-month period.

Another method that financial institutions may use is the point-to-point method, which involves identifying two values. The first is the value of the index when the market-linked CD was issued, and the other is the value of the index before the CD’s maturity date, which is referred to as the ending point. The difference between these two values will yield the expected return on your market-linked CD.

The final return also assumes that the funds are left in the CD until maturity. Withdrawing funds earlier than the maturity date — whether that’s two months or 20 years — will likely trigger early withdrawal penalties.

Pros of Market-Linked CDs

Market-linked CDs have several favorable characteristics that may be appealing to investors. They can be an alternative to conventional CDs for those seeking exposure to the stock market, without taking on too much investment risk.

•   Protection: Market-linked CDs protect your principal and, when held to maturity, the principal is backed by the bank that issues it. In the scenario where the underlying market declines during the period when you hold the CD, investors are protected from the loss of principal.

•   Insurance: Market-linked CDs are also insured by the FDIC or the National Credit Union Administration (NCUA) for the principal investment (but not investment earnings).

•   Potential for greater returns: Market-linked CDs have the ability to provide investors with higher returns than traditional CDs. Because the underlying asset is based on a collection of stocks, commodities, or indexes, there’s a chance MLCDs may outperform traditional CDs.

•   Return on original deposit: At time of maturity, you’ll get the full amount of your original deposit regardless of the performance of the underlying market index or securities. If you choose to attempt to sell your market-linked CD prior to maturity on the secondary market — if one exists, which is often not the case — there’s no guarantee that you’ll get the full amount of your principal back. MLCDs are primarily considered buy-and-hold financial instruments.

Cons of Market-Linked CDs

Investors must also consider the risks associated with holding market-linked CDs.

•   Liquidity risk: Investors must be aware that when opening a market-linked CD, they are locking up their money for a period of time, and they should be willing to hold on to the CD through its maturity to achieve the full benefits. If you need access to the capital in the CD and want to withdraw money, if permitted, the penalties can be significant, including potential loss of principal.

•   Market risk: Market-linked CDs that are linked to the equity markets are subject to volatility, which can impact the MLCD returns.

•   Taxes: MLCD earnings are taxed as interest income, not as capital gains, and thus investors will pay a higher rate for their earnings. Also, interest must be reported annually, even though it’s not paid until maturity.

•   Potential for little or no profit: It’s possible to hold an MLCD to maturity, but not making a profit. Even though your original principal will be protected, there’s no guarantee that you’ll make more than your deposit amount.

You may have the possibility of seeing greater gains if you invest your money directly in an index fund or exchange-traded fund (ETF), which can provide similar diversification benefits. However, investing directly in the market comes with higher risk and it’s possible you may lose your principal in addition to any potential gains.

Learn more about the different options that may be available when investing online.

How to Open a Market-Linked CD

Opening a market-linked CD is fairly straightforward. Here are the typical steps involved.

•   At the financial institution of your choosing, you can open a market-linked certificate of deposit by selecting the underlying asset and maturity date from among predefined products.

•   Next, deposit the amount of money you’re able to lock up for a period of time.

•   Some market-linked CDs have a minimum investment requirement and a maximum deposit limit per account, which must be considered.

Alternatives to a Market-Linked CD

Alternatives to market-linked CDs could include investing in a bond fund. Similar to a CD, bond funds have different maturity dates, either short-term or long-term, and may offer competitive yields. Depending on the creditworthiness of the bonds and the overall economic environment, the yield can vary. Bonds with a high credit rating, which are lower risk, may have a lower yield than bonds with a lower credit rating, but the latter may come with higher risk. The choice of a bond fund depends on the investor’s risk tolerance.

Investors may also consider a high-yield savings account, which is lower risk but usually yields less than a market-linked CD. These types of accounts are more for emergency funds, but if you’re looking for the lower risk options to store your cash, high-yield savings accounts can be another alternative to a market-linked CD.

When to Consider Investing in Market-Linked CDs

Investors may be interested in a market-linked CD if they’re looking for an alternative to a traditional CD and the potential for higher, market-based returns. Market-linked CDs may also offer some diversification alongside protection of principal investment.

If you’re looking for exposure to the broader stock market with managed risk, a marked-linked CD may be a suitable option because it’s viewed as an alternative to directly investing in the stock market. That said, market-linked CDs are insured products and aren’t considered securities. In addition, they can involve greater risk than traditionals CDs since the returns are tied to market activity vs. a fixed interest rate.

The Takeaway

Market-linked CDs are, as the name implies, a sort of hybrid savings-investment option. They offer some of the features of traditional CDs: You deposit your money for a fixed period of time and your principal is typically federally insured by the FDIC. You also face an early withdrawal penalty if you withdraw funds before the maturity date.

However, because MLCDs are market-linked, its performance is tied to underlying securities or a market index. Returns can fluctuate, unlike the fixed interest rates that CDs typically provide. MLCDs are also typically capped in terms of the gains they can provide. Finally, like any other investment in the markets, there’s no guarantee that a market-linked CD will see a profit by the time it matures.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What is a market-linked CD?

Market-linked CDs are certificates of deposit that can be linked to stocks, commodities, an index, or a mix of these, depending on the type of return the investor is seeking and their risk tolerance. Returns are typically tied to the performance of the underlying market benchmark rather than a fixed interest rate, which distinguishes them from traditional CDs.

Is a market-linked CD a security?

No. A market-linked CD is federally insured in the event of bank failure or fraud, so your principal is protected up to $250,000 per depositor, per account ownership category, per insured bank, if you hold the CD until maturity. Insured products aren’t considered securities.

What is a stock market CD?

A stock market CD is another name for a market-linked CD and is linked to a broad stock market index, such as the S&P 500. This means the CD’s performance will adjust as the index changes.

Photo credit: iStock/MicroStockHub

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SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2026 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOBNK-Q126-157

A chartered bank is a bank whose operations and services are governed by a charter issued at the state or federal level.

A charter is a legal document that essentially tells the bank what it can and can’t do. Chartered banks can be commercial banks but they can also operate as savings banks, savings and loan associations, or online-only banks. They can accept deposits and make loans, just like other banks.

There are, however, a few characteristics that make chartered banks unique. And it’s important to know that not all banking startups may offer the benefits of chartered banks. Learn the details here.

What Is a Chartered Bank?

A chartered bank is any bank that’s authorized to accept deposits or lend money according to the terms of a legally recognized charter. Chartered banks are subject to oversight from the government agency that issues their charters.

Like other banks, chartered banks can offer different types of financial accounts, including:

•   Checking accounts

•   Savings accounts

•   Money market accounts

•   Certificate of deposit accounts

•   Specialty accounts, such as custodial accounts or bank accounts for college students

Chartered banks can also offer various types of loans, including personal loans, auto loans, lines of credit, and mortgages.

A chartered bank may have a physical footprint with brick-and-mortar branches and ATMs. Or it may operate online-only. Both traditional and online chartered banks can allow customers to access their money via online banking, mobile banking, or phone banking.

Recommended: APY Calculator

How Does a Chartered Bank Work?

Chartered banks work by accepting deposits into bank accounts and making loans. When you deposit money into a savings account at a chartered bank, for instance, the bank may pay you interest on those funds.

Meanwhile, the bank uses your deposits and those of other customers to make loans, charging borrowers interest in the process. That’s largely how banks make a profit.

A chartered bank can also generate revenue by charging its customers fees. If you’ve ever paid an overdraft fee, for example, you’re aware of how much a single fee can add up to. How much you pay in fees to a chartered bank can depend on factors such as your account balance, account activity, and the type of bank you’re dealing with. For example, since online banks and credit unions tend to have lower overhead and operating costs than traditional brick and mortar banks, they may be able to pass savings on to their customers in the form of higher rates on deposits and lower fees.

Banks must apply for a charter; they’re not granted automatically. Each state sets its own requirements for state-chartered banks. The Office of the Comptroller of the Currency (OCC) regulates federally-chartered banks.

Regardless of whether the bank is chartered by the state or federal government, the bank usually insures deposits through Federal Deposit Insurance Corporation (FDIC) coverage. This covers up to $250,000 per depositor, per account ownership category, per insured institution. The bank must also apply for approval to join the Federal Reserve System if it wishes to do so.

Chartered banks may or may not be part of the SWIFT banking system. SWIFT, short for Society for Worldwide Interbank Financial Telecommunication, is an electronic messaging system that’s used to send financial transactions around the world. A chartered bank can, however, still process wire transfers and other electronic transactions even if they’re not part of SWIFT.

What Is a State Chartered Bank?

You may wonder what it means if a bank is chartered by the state vs. the federal government. Here’s a closer look.

•   A state-chartered bank is a bank that receives its charter from the state. As such, it’s subject to regulation by the chartering agency in that state. Again, the requirements to obtain a charter and the rules the bank is expected to follow once they secure a charter will depend on the state.

In California, for example, the process to become a chartered bank is similar to the process for establishing a commercial bank. Before a bank can apply for a charter, it has to complete a feasibility study, receive approval to proceed from the local government, and receive voter approval. The application itself is just a simple form, often only a couple of pages.

•   State-chartered banks that are part of the Federal Reserve System are regulated by the Fed. Any state-chartered bank that isn’t part of the Federal Reserve System is regulated by the FDIC instead. The FDIC regulates more than 5,000 state-chartered banks and savings associations.

What Is a Federally Chartered Bank?

A federally chartered bank is a bank that receives its charter from the federal government. The Office of the Comptroller of the Currency is responsible for regulating nationally-chartered banks and savings associations. The OCC is an independent branch of the Treasury Department.

Federally chartered banks are authorized to operate on a national scale. A federally chartered bank can be a traditional financial institution or an online banking platform.

Chartered Bank Oversight

Chartered banks are typically subject to oversight from the agency that issued their charter. Generally speaking, this oversight is designed to ensure the smooth operation of the bank itself while protecting consumer interests. Some of the things chartering agencies do include:

•   Visiting the bank to conduct on-site examinations

•   Monitoring the bank’s compliance with banking laws

•   Issuing regulations to cover banking operations

•   Taking enforcement actions when a bank violates a regulation or rule

•   Ensuring that the bank is financially sound and is conducting ethical banking practices

In extreme cases, the chartering agency may revoke the bank’s charter or close a bank if it fails. In the case of FDIC member banks, the FDIC steps in to cover deposits for customers. As noted, the current FDIC coverage limit is $250,000 per depositor, per account ownership category, per financial institution.

Chartered vs Online Banks

A bank can be chartered and have branches, or it can be chartered and operate online. In terms of what’s different between chartered banks that have physical branches and those that operate online, here are a few things to know:

•   Online banks tend to offer higher interest rates on savings accounts and possibly checking, too.

•   Online banks may also charge fewer bank fees, since they have lower overhead costs.

•   Brick-and-mortar chartered banks may offer a wider selection of banking products and services.

•   Traditional chartered banks can offer in-person banking, while online banks may limit you to accessing your account online or via a mobile banking app.

Whether it makes sense to choose a traditional bank vs. an online bank with a charter can depend on your preferences and needs. If you want to get the best rates on savings and don’t mind branchless banking, then you might choose an online bank. On the other hand, if you like being able to pop into a branch from time to time, you might prefer a brick-and-mortar chartered bank.

Keep in mind, however, that not all online financial companies (sometimes called fintechs) are chartered banks. There are many startups, but it’s wise to do your research and see what benefits and protections they offer, either by reading the fine print or asking customer service.

Chartered vs Commercial Banks

A commercial bank is a financial institution that engages in banking services, including accepting deposits and making loans. In that sense, it sounds similar to a chartered bank. In fact, a commercial bank can be a chartered bank, though not all commercial banks are.

Examples of chartered commercial banks include:

•   National banks that are chartered by the OCC

•   Non-member banks that are state-chartered but not part of the Federal Reserve System

•   State member banks that are state-chartered and part of the Federal Reserve System

When comparing a chartered vs. commercial bank, the main difference is the charter. A chartered bank is required to have either a state or national charter; a commercial bank may be chartered, but it isn’t required to be in order to operate.

Should I Do Business With a Chartered Bank?

Whether you opt to do business with a chartered bank is a matter of personal preference. Opening accounts with a chartered bank could give you peace of mind since you know the bank is subject to regulation. And in the rare event that the bank fails, an FDIC-insured bank can step in and restore your deposits to you.

When comparing chartered banks, consider such aspects as:

•   Account types offered

•   Account fees

•   Interest rates for deposit accounts

•   Interest rates for loans if you plan to borrow

•   Minimum deposit requirements

•   Access and convenience

•   Customer support availability

Security is another factor to weigh. The safety of mobile banking, for instance, might concern you if you’re used to managing your accounts at a branch or ATM. The good news is that online banks, chartered or not, often implement state-of-the-art security to protect customer accounts.

Keep in mind that you’re not limited to just one bank either. You may choose to open a checking account at a traditional chartered bank, for instance, and a high-yield savings account at an online bank. If you’re wondering whether to have multiple bank accounts, it can be helpful to have checking and savings at a minimum.

You can use checking to hold the money you plan to spend now and savings for the money you want to grow. Or you might prefer a simple hybrid approach that gives you the best of both worlds in one place.

Recommended: How to Open a New Bank Account

The Takeaway

A chartered bank is a financial institution whose operations and services are governed by a charter that is issued at either the state or federal level. The charter guides the bank’s activities and grants it certain privileges.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Are all banks federally chartered?

No, not all banks are federally chartered. Some banks hold a state charter instead.

What is a non-chartered bank?

A non-chartered bank is a bank that does not have a federal or state charter. Neobanks are an example of a bank that has no charter, though technically, they do not meet the strict definition of a bank.

What is the difference between a state and federally chartered bank?

State-chartered banks receive their charters from state agencies. They’re subject to regulation by the FDIC or the Federal Reserve if they’re part of the Federal Reserve System. Federally-chartered banks receive their charters from the federal government and are regulated by the OCC, or Office of the Comptroller of Currency.

Photo credit: iStock/ultramarine5

SOBNK-Q326-155

If an ATM eats your deposit, it’s best to move quickly, document the details of the event, and contact your bank immediately. In general, when an ATM malfunctions (say, by taking your cash or check and miscalculating or failing to acknowledge your deposit), it’s wise to take action ASAP. Read on to learn the exact steps to take if an ATM eats your deposit or otherwise fails to process your transaction properly.

Reasons Why an ATM Might Not Accept Your Deposit

Here are some of the reasons why an ATM deposit might not get the money into your bank account, from cash-counting problems to electrical issues:

•   Misread your check amount. An ATM’s Optical Character Recognition (OCR software) may have read the handwritten or printed amount on your check incorrectly.

•   Miscounted the cash amount. If you deposited $800 in cash and the ATM only registers $600, there’s been a mistake.

•   Power outage. A sudden power outage can cause a technical glitch to occur during the transaction. The unfortunate timing can mean a real headache for you.

•   Deposits are too much. If you make a large cash deposit at an ATM, there may be a money-counting error that interferes with the deposit. If it does accept the money but credits a larger amount than what you inserted, know that you are legally obligated to report it, or face consequences down the line.

It’s worth noting that there are hundreds of thousands of ATMs in the United States, helping customers skip the line at a bank branch when making deposits and withdrawals and managing their bank accounts. But even machines make mistakes. While rare, you could potentially find yourself in a moment where an ATM took your money but did not deposit it.

Recommended: Savings Account Calculator

What to Do if the ATM Takes Your Money

If you’ve deposited money into a machine but it doesn’t indicate that it credited it to your account, you may feel as if the ATM took your money. There are actionable things you may do to help take control of the situation.

Here’s what to do if an ATM eats your deposit:

•   Don’t panic. The situation is likely fixable. The calmer you are, the better able you may be to calmly communicate the problem to a bank employee.

•   Note the time. When dealing with an ATM malfunction, time can be of the essence. Make note of the time of deposit. It can be wise to write it down.

•   Note the place. You’ll usually need to know the address/branch info of the ATM when you file a report, especially if you’re at a branch of your bank you don’t normally frequent or at a stand-alone ATM with no bank employee to help you.

•   Snapping a photo of any error message, whether it appears on the screen or on a printed receipt, can be a good idea. You may need to submit it as evidence.

•   Report the incident to an employee right away if possible. If you are at your bank branch, approach a customer service representative immediately.

•   Call your bank. If you are not at your bank, reach out to yours right away using the number on the back of your debit card. Or look on the ATM itself for a customer-service phone number for the machine’s owner.

•   Be patient. The situation may not be addressed immediately. Under the Electronic Funds Transfer Act, your financial institution is obligated to investigate the ATM mishap within 10 days (45 days if the bank is willing to credit the missing fund amount). They are required to notify you in writing once the inquiry is resolved.

•   File a complaint. If you are struggling to get your funds back, you can contact the Consumer Financial Protection Bureau (CFPB). They may be able to help by contacting your bank to get a direct response and resolve the issue.

Remember: If an ATM took your money deposit, taking immediate action (whether in person, by phone, customer service chat, or email) can be a smart step.

Alternatives to an ATM for Depositing Checks

If you’d like to avoid the possibility of an ATM taking your money, there are alternative ways to deposit your funds, such as remote deposits.

•   Remote deposits. Most banks offer a mobile app that allows you to take a picture of your checks with your smartphone and deposit them without ever having to visit an ATM or bank branch in person.

•   Go to a teller. It might sound old-school, but for those who bank at traditional vs. online banks, you can hand your cash to a bank teller instead of a machine. Tellers can also perform other services, such as providing your balance so you don’t go over your withdrawal limits.

Recommended: How to Deposit a Check at an ATM, Mobile App, or Bank

Tips for Using an ATM Safely

You can take steps to help protect yourself when using an ATM and heighten the security of your transactions, such as being alert to your surroundings and whether the terminal has undergone any tampering.

•   Let the camera see your cash. If you are in a secure setting, try to count your money where the machine’s camera can catch it when depositing cash at an ATM. Having the recording can add to your evidence if an error occurs.

•   Get that receipt. Request and take the receipt from an ATM machine so you have a record of the transaction.

•   Ask for a check copy. Many ATMs can provide you with an image of your check on the printed receipt.

•   Use well-lit, well-trafficked ATMs. Making a withdrawal at an isolated, dimly-lit location can be riskier in terms of potential criminal activity than doing so at a brightly illuminated terminal where others are nearby.

•   Protect your card’s PIN. Be aware if anyone is trying to sneak a look at your details when using an ATM. Or you might consider making cardless ATM withdrawals via an app and QR code.

•   Look out for card skimmers. Some scammers are using card skimmers — small, plastic devices placed over a card scanner that can steal your debit card information. Double-check anywhere you might insert a card, including ATMs, grocery stores, and gas stations; if something looks off, head elsewhere.

The Takeaway

If an ATM accepts your cash or check without depositing your funds or registers an incorrect amount, it’s a good idea to gather evidence and report it to your bank immediately. Doing so will improve your chances of a quicker resolution and getting the money back where it belongs — in your account.

FAQ

What should you do if an ATM eats your deposit?

If an ATM eats your money without depositing the correct amount, smart moves include noting the time and location, getting a transaction receipt or photograph of any error messages, and contacting a customer service representative right away.

How often do ATMs eat deposits?

While there is no exact data on how often ATMs eat deposits, most of the billions of ATM transactions that occur in the U.S. each year happen without incident.

Is it possible to prevent an ATM from taking your money?

It is typically beyond your control to stop an ATM error (though they happen infrequently). The only way to completely avoid one would be to make remote deposits or visit a bank teller.

Photo credit: iStock/MIGUEL ANGEL PARTIDO GARCIA

SOBNK-Q326-154

The Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) are independent federal agencies that focus on insuring their customers’ deposits. The FDIC insures deposits at banks typically up to $250,000 per depositor, per account ownership category, per insured institution (though there are exceptions); the NCUA offers similar insurance and consumer protection but at credit unions.

Account holders don’t have to apply or qualify for this coverage; it is automatically provided with different deposit accounts, assuming the institution is an FDIC or NCUA member. The goal is to cover deposits in the rare instance that an institution were to fail; these programs don’t cover investment products or losses.

While these two entities serve similar purposes for consumers, they operate somewhat differently. Read on to learn more.

What Is the FDIC?

The Federal Deposit Insurance Corporation (FDIC) is over 90 years old. President Franklin D. Roosevelt established the Federal Deposit Insurance Corporation when he signed the Banking Act of 1933 amid the Great Depression.

The main purpose of the FDIC is to “maintain stability and public confidence in the nation’s financial system.” As part of that remit, the FDIC states that it insures consumer deposits and is “backed by the full faith and credit of the United States government.”

The FDIC typically insures $250,000 per depositor, per insured bank, per account ownership category. “Account ownership category” refers to single-holder accounts, joint accounts, and other bank accounts, and may also cover bank deposits held in individual retirement accounts (IRAs) and trusts (see table below).

If you are a person who keeps a considerable amount of money in a bank, whether in checking or savings accounts, you may want to know that some banks participate in programs that extend the FDIC insurance to cover millions, usually by dividing the assets into holdings of no more than $250,000 each among separate banks.

According to the FDIC, a depositor has not lost a single penny of FDIC-insured deposits because of a bank failure.

What Is the NCUA?

NCUA stands for National Credit Union Administration. Though the first credit union opened in the United States in 1909, and there were nearly 10,000 credit unions in the U.S. by 1960, Congress did not create the National Credit Union Administration until 1970.

Like the FDIC, the purpose of the NCUA is to insure deposits made by credit union members and protect those members who own credit unions. (Credit unions are not-for-profit and are owned by the members.)

Also like the FDIC, the NCUA states that it is “backed by the full faith and credit of the United States government” and insures deposits up to $250,000 per share owner, per insured credit union, for each account ownership category, share accounts (checking or savings accounts), and some IRAs and trusts.

Matching the FDIC’s track record, the NCUA states that no member has ever lost a cent from accounts insured through the NCUA.

All federally chartered credit unions are a part of the NCUA while state-chartered credit unions adhere to state-specific regulations. That said, many state-chartered credit unions are also insured by the NCUA.

Recommended: Savings Account Calculator

FDIC vs NCUA Insurance: Similarities and Differences

So what’s the difference between the FDIC and NCUA? The biggest difference regarding FDIC vs. NCUA is the customers they protect. The FDIC insures deposits for bank customers while the NCUA insures deposits for credit union members. As a customer of a financial institution, you will not likely notice a difference in your day-to-day banking.

In fact, it may be easier to talk about all the ways the FDIC and NCUA are similar. The table below explores these similarities (and minor differences).

What Does NCUA Coverage Protect?

NCUA coverage comes from the National Credit Union Share Insurance Fund (NCUSIF). The following account types are typically insured via the NCUSIF:

•   Share draft accounts (checking accounts)

•   Share savings accounts

•   Money market deposit accounts

•   Share certificates (like certificates of deposit)

Recommended: The Benefits of a High-Interest Savings Account

What Isn’t Covered by NCUA?

If your credit union carries insurance through the NCUA, you can usually depend on coverage up to $250,000 for common accounts like a checking or savings account. However, NCUA insurance does not cover securities and other non-deposit products, such as:

•   Stocks

•   Bonds

•   Mutual funds

•   Treasury securities

•   Annuities

•   Life insurance

•   Safe deposit boxes (or their contents)

What Does FDIC Coverage Protect?

Insurance through the FDIC typically covers account types that are comparable to those covered by the NCUA, but it’s for those held at most traditional or online banks vs. credit unions:

•   Checking accounts

•   Savings accounts

•   Money market deposit accounts

•   Time deposits (like certificates of deposit)

The FDIC also notes that its insurance covers Negotiable Order of Withdrawal (NOW) accounts, cashier’s checks, money orders, and other local items issued by a bank.

What Isn’t Covered by FDIC?

The FDIC has coverage exclusions similar to those of the NCUA. Its insurance through the FDIC does not extend to securities and other non-deposit products, such as:

•   Stocks

•   Bonds

•   Mutual funds

•   Annuities

•   Treasury securities

•   Life insurance

•   Safe deposit boxes (or their contents)

While the FDIC does not insure U.S. Treasury securities like bills, bonds, and notes, those assets are still “backed by the full faith and credit of the U.S. government.” As investments, Treasurys are subject to the risk of loss. However, the U.S. government guarantees the return of principal and interest when they’re held to maturity, making them one of the safest investments available.

How to Know if Your Institution Is Insured by the FDIC or NCUA

Because the FDIC and NCUA typically insure deposits up to $250,000 for checking, savings, and some other accounts (some external programs allow for higher insurance limits with the FDIC), it can be important to know when selecting a new financial institution that it is insured by one of the two organizations.

So how do you know if a bank is insured by the FDIC? The FDIC provides a few options:

•   Call and ask. Calling the FDIC is toll-free. You can reach them at 1-877-275-3342.

•   Search online. The FDIC has a database called BankFind that allows you to search for insured banks.

•   Look for the sign. When you enter a brick-and-mortar (aka physical) bank location, look for official FDIC signage.

•   Search the bank’s website. You can also simply review a bank’s website instead. Usually you can find language like “Member FDIC” in the footer if the bank is insured.

The options for determining whether a credit union is insured by the NCUA are similar:

•   Check online. Visit the NCUA’s agency website to search a complete directory of federally insured credit unions.

•   Look for the sign. Similar to the FDIC, the NCUA requires federally insured credit unions to place NCUSIF signage in their advertisements, offices, and branches to indicate insurance coverage.

•   Search the credit union’s website. Credit unions that are federally insured will include NCUA verbiage in the footer of their websites, just like banks do for the FDIC.

Remember, some state credit unions may not be federally insured. A credit union that includes “federal” in its name should automatically be insured by the NCUA. If you aren’t sure about a state credit union’s insurance, you can ask a credit union representative on site or over the phone for more information.

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Are All Banks FDIC Insured?

Most banks are FDIC insured — but not all of them. Any bank that is not insured federally through the FDIC likely carries insurance through its state, so your deposits are typically still safe. However, it is a good idea to thoroughly research a bank and its insurance policies before storing any money in an account at the institution.

Are All Credit Unions NCUA Insured?

Not all credit unions are NCUA insured. All federal credit unions should be automatically insured by the NCUA, but state credit unions must opt into NCUA share insurance. Those that don’t are typically insured through the state. As with banks, it is a good practice to check a credit union’s insurance status and understand how it can affect your money before opening any account.

How to Maximize FDIC and NCUA Insurance

Both the FDIC and NCUA are typically very clear on how much they insure — usually up to $250,000 — careful to use specific terminology like “per depositor” or “per share owner”; “per insured bank” and “per insured credit union”; and “for each account ownership category.”

Knowing that, there are a few ways you can maximize your insurance coverage:

Find a Program That Insures for More Than $250,000

As briefly noted above, some banks offer programs that allow depositors to insure their account for more than the usual $250,000 amount, typically by dividing assets into $250,000 chunks or less and holding those at different banks within a participating network. Check with financial institutions to see what may be available that can extend your account insurance to cover millions.

Open Accounts at Multiple Financial Institutions

You typically receive $250,000 of insurance coverage, per account ownership category, at each insured institution with applicable accounts. That means you could open up accounts at multiple banks and credit unions, spread your wealth across those accounts, and wind up with coverage on more than $250,000.

Use Account Ownership Categories to Your Advantage

Another way to maximize FDIC and NCUA insurance may be to utilize multiple account ownership categories. For example, at one bank, you could have a single ownership certificate of deposit with $200,000 and share a joint savings account holding another $200,000 with a partner. Even though you’d be above the $250,000 threshold, these separate account ownership categories can each qualify for the max insurance coverage.

Open Accounts for Various Family Members

You, your spouse, and your children could each open a single ownership savings account at the same bank and each deposit $250,000 in your own account. Because each account has a different depositor, each can be protected fully for $250,000.

Consider a Revocable Trust

If you and a partner want to put money together and save it as a potential nest egg for a family member, you can create a revocable trust (a type of trust fund). Then you can name beneficiaries for that money should you and the other account owner die. For each beneficiary, the account can be insured for $250,000. If you name three beneficiaries, you can deposit $750,000, and it will all be insured.

The Takeaway

The FDIC (Federal Deposit Insurance Corporation) and NCUA (National Credit Union Administration) are government agencies that protect consumers’ deposits at banks and credit unions. The two agencies operate similarly and protect the same kinds of accounts, typically up to $250,000 per account holder, per account ownership category, per insured institution. The key difference? The FDIC only insures money at banks while the NCUA only insures credit unions. Most but not all financial institutions have one of these types of insurance.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What does the NCUA not cover?

The National Credit Union Share Insurance Fund, which operates under the NCUA, does not cover stocks, bonds, mutual funds, annuities, life insurance policies, or safe deposit boxes and their contents.

How are the FDIC and NCUA similar?

Both the FDIC and NCUA are government agencies created by Congress to insure consumers’ deposits, including savings accounts, checking accounts, and CDs, up to $250,000 per person, per financial institution, and for each account ownership category. The main difference between FDIC and NCUA is that the FDIC insures banks and the NCUA insures credit unions.

Why are credit unions not FDIC-insured?

Credit unions are not FDIC-insured because the FDIC insures banks. Federal credit unions (and many state credit unions) are instead insured by the NCUA.

How much of your money is protected by FDIC or NCUA?

The FDIC insures up to $250,000 per depositor, per insured bank, for each category of ownership. In theory, you could have more than $250,000 across different account types at different FDIC-insured banks, and it would all be insured by the FDIC.

The same is true of the NCUA. The NCUA insures up to $250,000 per share owner, per insured credit union, for each category of ownership.

Photo credit: iStock/Talaj

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When you open and deposit money in a bank account insured by the Federal Deposit Insurance Corporation (FDIC), it is typically covered by up to $250,000 per depositor, per account ownership category at that institution, in the unlikely event of a bank failure. The National Credit Union Administration (NCUA) provides similar $250,000 coverage for accounts held at member credit unions.

However, it is possible to insure deposits at financial institutions that exceed the typical $250,000 limit. Some banks participate in programs that can extend this FDIC insurance to cover millions. Learn more here.

What Does It Mean for Your Money to Be Insured?

When money at a bank is insured by the FDIC, it’s protected in specific ways against potential losses. Bank insurance works similarly to other types of insurance. If you have a covered loss of funds in your bank account, then your insurance will make you whole — typically replacing lost funds up to $250,000 per depositor, per account ownership category, at an institution that has FDIC coverage. So even in the very rare situation that your bank were to go out of business, you would usually be able to claim your money up to the $250,000 amount. (As briefly noted above, some banks participate in programs that extend this coverage to higher levels.)

Bank insurance is designed to provide consumers with peace of mind so that they can feel more confident about depositing money into their accounts, such as a checking account or savings account. Banks rely on deposits to stay in business.

Here’s a brief look at how banks can make money: Funds that are on deposit may be used to make loans to other customers. Those borrowers agree to pay their loans back with interest. That interest can be used by banks in a variety of ways: They can pass some of it onto customers who make deposits in the form of interest on savings, money market, and certificate of deposit (CD) accounts.

Without a steady flow of deposits, banks could have difficulty making loans to other customers. Insuring deposits can help consumers feel safer about keeping their money in the bank, which can indirectly help banks continue doing business as usual.

How Do Banks Insure Money?

Banks in the U.S. typically insure money through the Federal Deposit Insurance Corporation (FDIC). Banks that are interested in being insured by the FDIC must apply for this coverage. Most but not all banks are members of the FDIC.

If you manage your money via a credit union, it likely insures its money through the National Credit Union Administration (NCUA).

What Is the FDIC?

The FDIC is an independent federal agency that was created by Congress in 1933 following the rash of bank failures that marked the late 1920s and early 1930s. The FDIC aims to maintain stability and public confidence in the nation’s banking system. The FDIC does that by:

•   Insuring deposits at member banks

•   Examining and supervising financial institutions for safety and consumer protection

•   Managing receiverships

•   Working to make large, complex financial institutions resolvable

The FDIC’s track record reveals that no insured depositor has lost any insured funds as the result of a bank failure.

What Are the FDIC Limits?

The FDIC insures bank accounts at member institutions but only up to certain limits. The standard coverage limit is $250,000 per depositor, per account ownership category (such as individual or joint), per financial institution. No consumer has to purchase this deposit insurance. As long as your accounts are held at an FDIC member bank, you’re automatically covered.

The $250,000 limit applies to each deposit account category you hold at a single bank. There are a few different categories used by the FDIC, including single accounts, joint accounts, and certain retirement accounts, among others. So if you have a checking account, savings account, and a certificate of deposit or CD account, for example, that are all owned by you and you alone (meaning, each is an individual account), your combined deposits for those accounts would be covered up to $250,000.

The FDIC coverage limit applies at each bank you have accounts with and each category of accounts you have with the bank.

That said, some banks do participate in programs that extend this typical FDIC coverage of $250,000 into the millions. Consider checking with your financial institution to see if this is available if you want to keep large sums of money on deposit.

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What Does FDIC Insurance Extend To?

There are different ways to deposit money into a bank account, and it’s important to know which accounts fall under the FDIC insurance umbrella.

The types of deposit accounts the FDIC insures include checking accounts, savings accounts, money market accounts, and CD accounts. The FDIC can also insure prepaid debit cards when certain conditions are met.

The FDIC does not insure investment products even when purchased at member banks. The FDIC generally does not cover non-deposit accounts, such as annuities, mutual funds, stocks, bonds, and government securities.

What Happens if a Bank Fails and My Money Is Fully Insured?

When a bank fails, which is an infrequent occurrence, the FDIC’s primary duty can be to pay depositors their money, up to the insured limit. So if you have $200,000 in insured deposits, all of that money should be covered in the event of a bank’s collapse, since the upper limit of the FDIC coverage is usually $250,000. The FDIC would either open an account for you with an equivalent amount of money at a new insured bank or cut you a check for the full amount.

The timeline for receiving funds after a bank failure is typically the next business day (or else within a few days). For example, if the FDIC shut down a failed bank on Friday, it would usually reopen depositor accounts elsewhere on the following Monday. If the FDIC cannot find another insured bank to acquire the failed bank’s accounts, then you’d receive a check instead.

Special rules apply for deposit accounts that exceed $250,000 and are linked to trust documents or deposits established by a third-party broker. In that case, the FDIC may need extra time to determine how much of those deposits are covered before any funds are released to the account owner.

What Happens if a Bank Fails and My Money Is Not Fully Insured?

If you have deposits that exceed the $250,000 coverage limit, the FDIC would follow the same process as outlined above. You’d receive funds up to the entirety of the insured amount you had at the bank.

But what about the excess deposits that were not insured? You’d receive a claim against the estate of the closed bank for any amounts that were not insured by the FDIC. You’d get a Receiver’s Certificate as proof of the claim, which would allow you to receive payments from the bank’s assets as they’re liquidated.

That doesn’t mean, however, that you’re guaranteed to get all of your money back (unless your bank participates in a program that extends coverage to a higher figure, described below). For example, if you had $300,000 in your accounts, you’d be able to get the $250,000 that’s covered by FDIC insurance. But whether you’d be able to get the other $50,000 back would depend on how much the failed bank has in assets and how many other creditors are set to be paid out ahead of you.

Tips to Insure Excess Deposits

If you maintain higher balances in your bank accounts, you may be able to insure more than $250,000. You likely will have to do a little more legwork to make sure that your deposits are covered, but it could pay off if your bank fails, though that is a rare occurrence. Doing so could enhance your peace of mind.

Here are several options for how to insure excess deposits and keep your funds safe.

Using a Bank That Offers More Than $250,000 Insurance

As mentioned above, there are some banks that participate in programs that allow them to extend the FDIC insurance to cover millions. If this feature is important to you, it would be wise to seek out a bank with this option. Typically, the bank will divide your assets into accounts of $250,000 or less at insured participating banks.

Using Multiple FDIC-Insured Banks

Another option: You could spread your money out across deposit accounts at different banks. So if you have $300,000 in deposits at Bank A, you could move $100,000 of that to an account at Bank B. Then both accounts are within the $250,000 coverage limit.

The FDIC applies the $250,000 coverage limit at each insured bank where you maintain accounts. Managing accounts at multiple banks may require you to be a little more organized to keep track of funds. But you can simplify things by using a personal finance app to sync account data. With this kind of tech tool, you can view balances and transactions in one place.

Using IntraFi Network Deposits

CDARS, which stands for Certificate of Deposit Account Registry Service, is an IntraFi Network Deposits program that can make it possible for consumers to insure excess deposits. It uses demand deposit accounts, money market accounts, and CD accounts at participating financial institutions.

Here’s a brief overview of how it works. Say you want to place $1 million on deposit at your bank. Since your bank participates in the IntraFi Network, they can take that $1 million and split it up, depositing it into accounts at other network banks. Each new account may be covered up to the FDIC limit, as applied to both principal and interest.

You’d still maintain your primary account at your current bank, but you’d be able to track deposits across other banks in the network.

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Using an NCUA-Protected Credit Union

Another option for insuring excess deposits can be opening an account at an NCUA member credit union. The National Credit Union Share Insurance Fund was created in 1970 by Congress to protect deposits at federally insured credit unions. The current coverage limit is $250,000 per member, per credit union, per account ownership category. The same $250,000 limit applies to joint accounts.

You’re not required to choose between coverage with NCUA vs. FDIC insurance. You can have NCUA-insured accounts at credit unions and FDIC-insured accounts at member banks at the same time. This can allow you to divide your funds up into $250K or lower amounts and distribute them among multiple insured banks and credit unions to get the coverage you seek.

Using Banks That Insure With DIF Insurance

The Depositors Insurance Fund (DIF) is a private, industry-sponsored insurance fund that insures deposits at member banks. DIF can cover deposits above the $250,000 FDIC coverage limit. In addition, all DIF member banks are also FDIC member banks.

There’s one important caveat, however. DIF insurance is only available at member banks in the state of Massachusetts. If you don’t live in Massachusetts or are unable to open an account online at a member bank, you may not be able to take advantage of this option for insuring excess deposits.

Using a Cash Management Account

Cash management accounts are similar to checking accounts and savings accounts, but they’re offered by brokerages rather than banks. For example, if you open an IRA or taxable investing account, you might be offered a cash management account. It could serve as a place to hold money that you plan to invest or settlement funds from the sale of securities.

One interesting feature of cash management accounts can be that some of them may offer a sweep feature which makes it possible to insure excess deposits. They can do this by moving some of the funds in your cash account into deposit accounts at FDIC member banks. This is typically done automatically so you might not have to worry about keeping your account balances within FDIC limits.

It’s important to check with the brokerage house or other entity to find out if your account would have this feature when you are considering this way of holding and securing your money.

What if My Current Bank Is Not FDIC-Insured?

If your current bank is not FDIC-insured, you might be left in the lurch in the very rare event of a bank failure. Most but not all banks are insured by the FDIC up to $250,000 per depositor, per account ownership category, so it can be a smart move to find out if yours is.

In this situation of not having FDIC coverage, you may want to consider moving your accounts to a different financial institution. Doing so can provide peace of mind, particularly if you maintain larger balances in your accounts.

You can use the FDIC BankFind tool to locate member banks in your area. Keep in mind that you’re not necessarily limited to branch banking either. There are a number of online banks that are FDIC members, so you may get the benefit of deposit insurance along with low fees and competitive rates these banks are known for.

The Takeaway

Knowing whether your deposits are insured in the rare event of a bank failure can help protect your assets. If you have more than the FDIC or NCUA limit of $250,000 per depositor, per account ownership category, per insured institution, you may want to look into your options. These can include targeting the programs some banks offer to insure more than that amount of cash, dividing up your accounts into different insured institutions, and exploring the IntraFi Network, among other strategies.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Are there banks that insure more than $250K?

Banks that are FDIC members typically follow the $250,000 coverage limit. Some banks participate in programs that extend FDIC coverage, sometimes through IntraFi Network Deposits.

How do millionaires insure their money?

Millionaires can insure their money by depositing funds in multiple FDIC-insured accounts, NCUA-insured accounts, or through IntraFi Network Deposits’ CDARS program. However, they might also choose to keep their money in stocks, real estate, or other vehicles. It can be a very personal decision.

Are joint accounts FDIC-insured to $500,000?

Joint accounts may be insured up to $250,000 per owner. So if you own a joint bank account with your spouse, for example, you’d each usually be covered up to the $250,000 amount for a combined limit of $500,000. Joint accounts are insured separately. Your coverage limit does not affect the limit that applies to single-ownership accounts.

Photo credit: iStock/PeopleImages

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