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How Much Money Do Banks Insure?

By Rebecca Lake · July 12, 2022 · 8 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

How Much Money Do Banks Insure?

When you open an account, you likely know that the Federal Deposit Insurance Corporation (FDIC) will insure your money up to $250,000 in the rare event that your bank fails. When it comes to how much money do banks insure, that standard FDIC coverage limit can be more specifically stated as $250,000 per depositor, per account ownership type, per financial institution. The National Credit Union Administration (NCUA) provides similar cover for accounts held at member credit unions.

It’s possible, however, to insure larger amounts of money at your bank. If you’re wondering how you can insure more than $250K, here’s a closer look at how insuring sizable deposits works. Learn more about:

•   What the FDIC is

•   What it means when your money is insured

•   How much money a bank will insure

•   What happens if a bank fails

•   Tips on insuring deposits over $250K (also known as excess deposits).

What Does It Mean for Your Money to Be Insured?

When money at a bank is insured, it’s protected against potential losses. Bank insurance works similarly to other types of insurance. If you have a covered loss, then your insurance will make you whole. In the case of FDIC insurance, a covered loss means a bank failure. Phrased differently, it means even if your bank were to go out of business, you would still be able to claim your money up to the $250K amount.

Bank insurance is designed to provide consumers with peace of mind so that they’ll feel confident about depositing money into their accounts. Banks rely on deposits to stay in business. Here’s a brief look at how banks make money: Funds that are on deposit are then used to make loans to other customers. Those borrowers pay their loans back with interest. That interest can be used by banks in a variety of ways: They can pass 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 would 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 to continue doing business as usual.

How Do Banks Insure Money?

Banks insure money through the Federal Deposit Insurance Corporation. Banks that are interested in being insured by the FDIC must apply for this coverage. Not all banks are members of the FDIC.

If you manage your money via a credit union, it likely insures its money separately 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’s primary mission is 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 boasts an impressive track record. To date, no insured depositor has lost any insured funds as the result of a bank failure.

Recommended: What is the FDIC and Why Does it Exist?

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 type, 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 all the deposit accounts you hold at a single bank. So if you have a checking account, savings account, and a CD account, for example, that are all owned by you and you alone, your combined deposits 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.

Recommended: Do Checking Accounts Have a Maximum Limit?

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. Deposits the FDIC does not cover include annuities, mutual funds, stocks, bonds, and government securities.

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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 is to pay depositors their money, up to the insured limit. So if you have $200,000 in insured deposits, you wouldn’t lose any of that money. 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. It’s common for the FDIC to shut down a failed bank on Friday and 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? Of course, that would likely be an urgent question. 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. 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 wondering, “Can I insure more than $250K?” The answer is yes. You may have to do a little more legwork to make sure that your deposits are covered, but it could pay off if your bank fails. And it would probably enhance your peace of mind.

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

Using Multiple FDIC-Insured Banks

The first way to insure excess deposits may be the simplest. You can 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.

The FDIC applies the $250,000 coverage limit at each 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 that kind of tech tool, you can view balances and transactions in one place.

Using the CDARS Network

What is CDARs? CDARS stands for Certificate of Deposit Account Registry Service. Recently renamed IntraFi Network Deposits, this program makes it possible for consumers to insure excess deposits using demand deposit accounts, money market accounts, and CD accounts at participating financial institutions.

Here’s a simple 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 is covered up to the FDIC limit, as applied to both principal and interest.

Using the IntraFi Network (or CDARs, if you still call it that) could make sense if you have a larger amount of cash you’d like to keep on deposit and earn 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.

Recommended: What Is an Uninsured Certificate of Deposit?

Using an NCUA-Protected Credit Union

Another option for insuring excess deposits is 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. 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 covers all deposits above the $250,000 FDIC coverage limit. In addition, all DIF member banks are also FDIC member banks.

There’s one caveat, however. DIF insurance is only available at member banks in the state of Massachusetts. What if you don’t live in Massachusetts or are unable to open an account online at a member bank? Then 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 is that some of them offer a sweep feature which makes it possible to insure excess deposits. They do this by moving some of the funds in your cash account into deposit accounts at FDIC member banks. This is done for you automatically so you don’t 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?

Understanding how much money a bank will insure matters because you don’t want to be left in the lurch if your bank fails. Not all banks are covered, however, and while non-FDIC banks are rare, they do exist.

If your current bank is not a member FDIC, then 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 limited to branch banking either. There are a number of online banks that are members of the FDIC. You can likely get the benefit of deposit insurance along with low fees and competitive rates on these bank accounts.

Banking With SoFi

Knowing whether your bank deposits are protected against failure can help you feel more comfortable about where you keep your money. While the odds of your bank failing are low, it’s important to know what the FDIC or another organization would do to protect you in that scenario. You probably worked hard for your money and want to know it’s secure.

SoFi offers a Checking and Savings account in one convenient place. You can get a great rate on deposits while paying no account fees. And SoFi security measures ensure that your accounts stay safe when you’re accessing them online or through the SoFi mobile app.

Better banking is here with up to 3.25% APY on SoFi Checking and Savings.

FAQ

Are there banks that insure more than $250K?

Banks that are FDIC members follow the $250,000 coverage limit. It’s possible, however, to insure excess deposits over that amount through banks that belong to IntraFi Network Deposits (formerly CDARS). You may also be able to increase your coverage limit by using cash management accounts with an FDIC sweep feature offered at a brokerage.

How do millionaires insure their money?

Millionaires can insure their money by depositing funds in FDIC-insured accounts, NCUA-insured accounts, through IntraFi Network Deposits, or through cash management accounts. They may also allocate some of their cash to low-risk investments, such as Treasury securities or government bonds. However, they might not worry as much about insurance and choose to keep their money in stocks, real estate, or other vehicles. It’s a very personal decision.

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

Joint accounts are insured up to $250,000 per owner. So if you own a joint bank account with your spouse, for example, you’d each be covered up to that 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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