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FDIC Insurance Coverage: Limits and Strategies

Written by Nickel - 34 Comments

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

Published on July 24th, 2008
Modified on May 27th, 2009 - 34 Comments
Filed under: Banking

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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34 Responses to “FDIC Insurance Coverage: Limits and Strategies”

  1. 1
    F2O Says:

    Actually, joint and individual accounts are considered different ownership categories. As such, the balances are not combined for FDIC coverage.
    The link is:
    http://www.fdic.gov/deposit/de.....index.html

  2. 2
    tom Says:

    Yes, 2 people can have a total of $400k insured at one institution. Person #1 has $100k individual acct, Person #2 has $100k individual acct, and a $200k joint account. Another helpful link is for the FDIC estimator:
    http://www4.fdic.gov/EDIE/

  3. 3
    Alain Wong Says:

    The problem is that the FDIC may run out of funding as more and more banks fail in the coming months. IndyMac already took a big chunk of it. Washington Mutual is crippled along with many other regional banks. So it’s just a matter of time before we see more bank runs and failures. So the question should really be “What if the FDIC fails?” Oh my.

  4. 4
    nickel Says:

    F2O and Tom: You are correct, thanks for pointing out the error. It appears that I mis-interpreted one of their examples. Regardless, it’s fixed now.

  5. 5
    F2O Says:

    Nickel, thanks for spreading the word on this… Many people are confused about what’s covered and unfortunately, many bank employees are unknowingly spreading false information. It seems to me that the documentation from the FDIC could be a little clearer.

  6. 6
    Melissa Says:

    Another way to get around the 100k limit is by using another category of account; namely, the revocable/irrevocable trust account. These are insured up to 100k per owner, per beneficiary (but does not include the owner) therefore a couple with 3 kids could have an account set up jointly in trust for their kids and be insured up to $600,000. The couple could each have their own trust account also with the other named as beneficiary, insured up to 100k. There are some limitations for beneficiaries ( I believe it is limited to spouses, siblings, parents, children, and grandchildren) and of course, if the owner were to die, the accounts then revert to the “single account” category for each beneficiary and only go to 100k, but there is a grace period in which the funds are still insured fully so you have time to restructure.
    This was probably very confusing (I work in a bank and it still confuses me sometimes!) but it’s worth looking into for those with a large amount of funds.

  7. 7
    Greg J Says:

    The FDIC has no problem with the variations of accounts that they cover with insurance. You’re not “getting around” the 100,000 dollar limit by using different account structures, you are using it correctly.

    The FDIC is not going to fail, either. Well, in reality, what you are referring to is not the FDIC but the “BIF”, the Bank Insurance Fund. The overall US government and policy of the Treasury Department won’t allow that to happen.

    Sleep easy….

  8. 8
    Robert B. Langeland Says:

    How and can I put $282,000 into an ING account, can I open, three accounts, divid them equally and still be FDIC Insured?

  9. 9
    Greg J Says:

    In any FDIC insured bank you could do this:

    RBL – 92,000

    RBL and Mrs. RBL/joint account – 95,000

    RBL itf junior RBL – 95,000

    Another variation could be joint account with junior, etc. See the note above by Melissa for additonal ideas.

  10. 10
    Melinda Says:

    In my experience with FDIC insurance and the Lincoln Saving failure, they insured up to $100,000 per account. However, in this case it did not mean you would receive 100% of your loss up to $100,000. It specifically meant that you would receive a percentage on the dollar of your account up to $100,000. For example, if you had $10,000 in your account, then FDIC insurance might pay you 50 cents on the dollar for a total payment of $5,000.

  11. 11
    Robert B. Langeland Says:

    Why !

  12. 12
    Les Says:

    Great article. Well written. I’m a claims agent with the FDIC & I enjoyed your article. Keep informing the public–they should and must know what’s out there for them. Les

  13. 13
    Bill Says:

    If you are really concerned, you should place your money in multiple banks rather than trying to see how many ways you can stack up multiple accounts with one bank and still get paid. If you have it all in one bank, then your risk is clearly greater — at least the risk of having to wait days or weeks or months to get access to your money if multiple banks fail at about the same point in time and the FDIC gets overworked.

  14. 14
    Bill Says:

    Melinda, what is the basis of your statement that a $10K account might only get $5K back? I think you might be misinterpreting. If a bank has only enough money to pay its depositors 50% of what they deposited, then the FDIC will only put up the other 50%, not the entire amount. So the FDIC only pays 50%, but those with under 100K balances do get 100% back, not just half.

  15. 15
    Greg J Says:

    >Melinda, what is the basis of your statement that a >$10K account might only get $5K back? I think you >might be misinterpreting. If a bank has only enough >money to pay its depositors 50% of what they >deposited, then the FDIC will only put up the other >50%, not the entire amount. So the FDIC only pays >50%, but those with under 100K balances do get 100% >back, not just half.

    That is correct.

  16. 16
    Charles D Says:

    Should Washington Mutual decide to file bankruptcy, what is the actual trigger that alerts the FDIC to start writing checks? How long does it usually take for the FDIC to issue payment once this happens? Thanks

  17. 17
    Tom Says:

    I was wanting to get a $400,000 CD and title the CD in my revocable trust with myself and wife being trustees based on my trust instrument. Our two kids are both beneficiary’s of the trust in the event something happens to my wife and I. How much FDIC insurance coverage do I have in this situation? Should I break this up into smaller amounts?

  18. 18
    Walter N. Russell Says:

    I have $400,000 in one bank spread evenly over
    4 accounts. Acct. is in my name, with beneficiary’s
    named as my wife and listed separately my 3 children.

    Are we covered 100% ?

    I have been told by the bank—Yes.

  19. 19
    Don H Says:

    What if you had a bank account with a $1 million balance, and a loan there where you owed $1 million.

    If the bank fails, do you get $100,000 and owe $1 million?

    Or, do you get an offset and net -0- balance?

  20. 20
    Jodi Says:

    I recently read that if the economy is bad and a bank goes under, the $100,000 you have insured under FDIC insurance through the instutition may only be paid out to a consumer in $1,000 increments throughout the years until your $100,000 is used up. Is this true?

  21. 21
    nickel Says:

    Jodi: I’ve never heard that before, and I’d be surprised if it was true. In most cases, the FDIC doesn’t even have to disburse funds, as the failed bank’s assets are sold to another bank who backs the accounts.

  22. 22
    Ron Says:

    For a regular c.d. that I have totaling $200,000 can I put my 15 year old daughter’s name with mine and get $200,000 coverage. Are there any hurdles to jump if putting a child’s name with mine to get the $200,000 coverage?

  23. 23
    Robert W. Mason Says:

    I’d like to know how long does the FDIC have to repay an account that has failed?

  24. 24
    Robert W. Mason Says:

    How laong does the FDIC have to repay a defaulted account

  25. 25
    Clinton Newby Says:

    Is there insurance (outside of FDIC) that will insure IRA accounts that are in excess of $250,000.00?

    Thank you.

  26. 26
    Ron Says:

    When does the new 250K insurance (which was part of the bail-out package) go into effect? Immediately?

  27. 27
    Dave Says:

    #19 Don:

    By my understanding (having just read over the NCUA rules as well), outstanding loans are paid out of your balance and you receive the remainder. But also from my understanding this is ONLY if the institution is liquidated completely, not bought or merged but actual complete bankruptcy.

  28. 28
    Glenn Meyer Says:

    How long does the FDIC have to pay back the money on an account in a failed bank and in what order, $1,000 per month or what?

  29. 29
    Lara Says:

    I came across this web site after searching for some information regarding FDIC insurance. Our neighbors had a substantial amount of money w/ Net Bank over a year ago…..and they are STILL waiting to get the rest of their money back via FDIC….apparently it is NOT an easy process….so far they have received about 70%.
    I am absolutelyy stunned at how many people still put large amounts of money in bank CD’s. The rates are terrible….and then you have to pay taxes on what little bit of interest you do get…..which means you are not even “breaking even” w/ the rate of inflation. I believe it stems from an old school mentality. I was also raised to believe that you should “put your money in the bank”…. until I learned otherwise.

  30. 30
    Scott Says:

    Comment #29 by Lara (12 May 2009) is informative. I didn’t see an answer to any of the questions about timelines for payout. How long does the FDIC have to pay for failed accounts? Thanks very much.

  31. 31
    Joe Gresham Says:

    I found out today that the FDIC ,if they wanted to, could take as long as 99 years to return one’s money.

  32. 32
    Rex Matlack Says:

    In the past non interest bearing bank deposits carried unlimited FDIC insurance. Is this still the case? Please provide appropriate regulation that provides this. Thanks,

  33. 33
    dragon Says:

    ok here my question now one seams to answer straight out. if i had 1 million dollars & put it in 4 different checking accounts at one bank will i be covered 100%? just me & no one else.

  34. 34
    Lara Says:

    @Dragon,
    No, you would not be fully covered. Remember, it is per social security number per institution. You also need to keep in mind what FDIC coverage actually covers…and what it doesn’t. I think the bigger question here is WHY would someone ever put that amount of money in a checking account or CD for that matter when there are so many other better options that still keep your money safe?

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