Bank Deal: Earn 1.00% APY on an FDIC-insured savings account at Barclays Bank.
With the recent failure of IndyMac bank, along with all of the accompanying news about banks at the risk of failure it seems like the “credit crunch” has really begun to hit home. In fact, I’ve recently heard from several readers who are concerned about the safety of their money. With that in mind, I thought I’d pull together some information on FDIC insurance coverage.
What is the FDIC?
The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation created by the Glass-Steagall Act of 1933. It was created in response to the large number of bank failures during the Great Depression, and serves as a sort of safety net that guarantee deposits held by commercial banks.
What’s covered by the FDIC?
The FDIC insures deposits received at an insured bank. This includes deposits into check and savings accounts, money market deposit accounts, and certificates of deposit (CDs). FDIC insurance cover the balance of a depositor’s account dollar-for-dollar up to the insurance limit, including both principal and interest accrued up to the closing of the affected bank.
If you’re not sure whether or not your bank is covered (it seems that most are), look for the FDIC sign in their window or (for online banks) a graphic indicating membership on the bank’s homepage. You can also call the FDIC toll-free at: 1-877-275-3342.
What’s not covered by the FDIC?
FDIC insurance does not cover money invested in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities. Note that this is true even if these investments were bought from an insured bank. The FDIC also does not insure U.S. Treasury bills, bonds, or notes — these are back by the “full faith and credit” of the U.S. government.
Limitations of FDIC coverage
Update: With the passage of the new economic bailout bill, FDIC coverage limits have been temporarily increased. See below for details.
The basic insurance amount is a total of
$100,000 $250,000 per depositor, per insured bank. This $100,000 $250,000 coverage level applies to all depositors of an insured bank except for owners of certain retirement accounts, which are covered up to a total of $250,000 per insured bank. The nice thing here is that your retirement accounts are separately insured from any other deposits you may have at the same institution.
While deposits in different branches of the same insured bank are not separately insured, deposits in one insured bank are insured separately from deposits in another insured bank. Also, because coverage is determined on a “per depositor” basis, joint accounts are covered for up to
$200,000 $500,000. Interestingly, the FDIC provides separate insurance coverage for deposit accounts held in different categories of ownership, such that you can exceed the $100k $250k limit by holding both single and joint accounts at one bank.
One potential “gotcha” has to do with business accounts. As long as the business is a separate legal entity, then the account qualifies for it’s own coverage. But if the business is being operated as a sole proprietorship, then the deposits would fall under the sole proprietor’s limits.
Maximizing your FDIC coverage
So what should you do if you have more than
$100k $250k kicking around and you want it all insured? As noted above, joint accounts represent one way of stretching your coverage by giving you an additional ownership class. Of course, this solution is limited to those with a spouse or other trustworthy individual who could serve as the account co-owner. Another possibility would be to open accounts at multiple banks, as this would provide you with as many $100,000 $250,000 limits as you have banks. A related option is the Certificate of Deposit Account Registry Service (CDARS).
I’m not going to go into the CDARS in detail here, other than to say that it provides a means for easily spreading your assets around into CDs at multiple banks. CDARs allow you to safely exceed FDIC limits many times over, with the downside being that the CD rates are typically a bit lower than you can get on the open market. Bankrate had a recent article if you’re curious about this option.
Photo Credit: kenyee
- How to Become a Millionaire
- How to Get Out of Debt
- The Best Dollars I've Ever Spent
- How Our Estate Plan is Structured
- How We Paid Our Mortgage In Less than 10 Years
- Money Making Ideas
- How to Manage Your Asset Allocation with Multiple Accounts
- Consumption Smoothing - Save While the Saving's Good
- How to Save on Groceries
- How Much Life Insurance Do You Need?
- Eleven Great Books About Money
- Dave Ramsey is Bad at Math (692)
- Dish Network Customer Service SUCKS (534)
- $8,000 Homebuyer Tax Credit (429)
- Pay Off Mortgage Early or Invest? (424)
- How to Claim the First-Time Homebuyer Tax Credit (352)
- Termite Control: Sentricon vs. Termidor (325)
- How Much Should You Pay a Babysitter? (284)
- Ethanol Blended Gas = Lower Mileage? (272)
- Reduced Credit Limits? Share Your Experience (256)
- $15,000 Homebuyer Tax Credit (242)
- Buying Furniture off the Back of a Truck (227)
- Will Mac OS X Lion Kill Quicken 2007? (191)