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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.
Key Points
• The Federal Deposit Insurance Corporation (FDIC) typically provides insurance coverage for bank deposits up to $250,000 per depositor, per account ownership category, and per institution.
• Some banks may offer programs that can extend FDIC insurance coverage beyond the standard limit, allowing for higher amounts to be insured.
• The FDIC protects various account types, including checking and savings accounts, while investment products like stocks and bonds are not covered.
• In the very rare event of a bank failure, depositors usually receive their insured funds quickly, often by the next business day, up to the insured limit.
• Strategies for insuring excess deposits beyond the typical FDIC coverage may include using multiple banks, participating in IntraFi Networks program, or opening accounts at NCUA-insured credit unions.
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.
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