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An Overview of FDIC Insurance
Keeping your money at an FDIC-insured bank may give you peace of mind.
When you open a bank account, you expect your money to be safe. It’s your bank’s responsibility to house your funds and make them available when you need them.
Unfortunately, some banks fail, as we saw in spring 2023 with the collapses of Silicon Valley Bank and First Republic Bank.
That risk of failure is exactly what the Federal Deposit Insurance Corporation (FDIC) protects you from. The FDIC protects money kept in specific deposit accounts if the financial institution fails.
Let's examine how this type of insurance works and what you could do to ensure it covers your money.
Key Takeaways
FDIC insurance protects funds in deposit accounts if your bank fails.
The insurance is limited to $250,000 per account ownership type, per owner, per institution.
Financial institutions must be chartered and FDIC members to offer FDIC insurance.
What Is FDIC Insurance?
The Federal Deposit Insurance Corporation issues FDIC insurance and protects money kept in an insured deposit account.
Deposit accounts, like checking or savings accounts, allow you to deposit and withdraw money.1 FDIC insurance guarantees access to your deposits, up to the limits, if the bank fails. The limits are $250,000 per depositor, per ownership category, per institution.2
These limits are well above the median bank account balance, which hovers around $5,300. FDIC insurance is a useful tool that may help you protect every dollar you have.
In 1933, the government created the FDIC as a response to the bank runs during the Great Depression.3 Banks had lent out too much of their deposits, and people couldn’t withdraw their funds when they needed to.
In 1934, the FDIC set the initial deposit insurance limit at $2,500 and have raised it several times since.4
Becoming an FDIC Member
A bank must be state or nationally chartered to qualify for FDIC insurance. A charter establishes the rules that govern how the bank operates. The chartered bank must apply and meet stringent requirements to become an FDIC member. Once approved for membership, the bank pays for FDIC coverage.5
Though FDIC insurance is a vital tool that helps keep your money safe, not all banks are FDIC insured.
For example, neobanks and some fintech companies that offer deposit accounts aren’t chartered, meaning they can’t offer FDIC insurance on their own. Instead, many of these companies work with partner banks to offer FDIC insurance. Note that money kept in uninsured accounts may not be recoverable if the company goes under.
One quick note about deposit insurance before we go further. FDIC insurance doesn’t protect deposits held at credit unions. Instead, chartered credit unions have their own deposit insurance through the National Credit Union Association (NCUA). The NCUA limits mirror the FDIC’s; $250,000 per owner, per insured credit union, for each account ownership category.6
What Accounts Are Covered by FDIC Insurance?
As we mentioned above, FDIC insurance only covers specific deposit account types. These include the following:7
Deposit accounts like savings accounts, checking accounts, and certificates of deposit
Money Market Deposit Accounts (MMDAs)
Cashier’s checks
Money orders
Individual retirement accounts (IRAs)8
Self-directed retirement contribution plans9
Once these accounts are opened at an FDIC-insured bank or financial institution, they’re automatically covered by FDIC insurance.
FDIC insurance doesn’t cover the following types of accounts, even if they’re held at an FDIC-insured institution:10
Investment accounts, including stocks, mutual funds, and bonds
The contents of safe-deposit boxes
Money market brokerage accounts
U.S. Treasury bills or bonds
Cryptocurrency
Life insurance policies
Annuities
Municipal securities
How Does FDIC Insurance Work?
Unlike most types of insurance, FDIC insurance isn’t something you have to buy when you open a deposit account. Eligible banks purchase and maintain FDIC insurance on your behalf.
The insurance covers deposits that accountholders make into qualified accounts automatically if the bank is an FDIC member.
What happens when a bank fails?
If a bank fails, accountholders are notified in writing by the FDIC immediately after the bank closes.11 After the bank closes, one of two scenarios could occur.
In the first situation, a new bank may acquire the defunct bank and transfer your accounts over.12 In this case, accounts are transferred to the acquiring bank and accountholders become their customers.
If the failed bank isn’t acquired, the FDIC steps in and assumes control. In this case, the FDIC pays depositors directly by check up to the insured balance in each account. These payments usually happen within a few days of the bank closing.13
FDIC Insurance Limits
Wondering if your money is FDIC-insured? As long as your bank is FDIC-insured and your money is held in a covered deposit account, you’re covered up to the limit.
FDIC insurance is limited to $250,000 per depositor, per account ownership type, per institution. The FDIC has a list of banks that are members so you can check if your bank is FDIC-insured.
The bank protects you for up to $250,000 for individual accounts and up to $250,000 per person for joint accounts.
But what happens if you have multiple individual deposit accounts at the same bank? Your insurance coverage remains limited to $250,000.
Let’s look at a quick example. Say you have money in the following types of accounts at your bank:
$100,000 in a single owner savings account
$150,000 in a single owner checking account
$75,000 in a single owner high-yield certificate of deposit (CD) account
The total of your funds comes to $325,000. If the bank were to fail, FDIC insurance would cover $250,000 of your total balance. You might lose $75,000 because FDIC insurance doesn't cover beyond $250,000, as all these accounts are single owner accounts.
But say you have the following:
$100,000 in a single owner savings account
$150,000 in a joint checking account
$75,000 in a single owner high-yield certificate of deposit (CD) account
In this scenario, the deposits in single owner accounts total $175,000 and deposits in joint owned accounts total $150,000. The entirety of these funds is FDIC insured because each ownership category has a total value under $250,000.
If you’re unsure about your current FDIC insurance, you could use the FDIC’s Electronic Deposit Insurance Estimator to calculate your coverage.
Ownership Categories
FDIC insurance covers one account type per depositor (individual), per account ownership type, per financial institution.
When we say “type of account” in this context, we don’t mean type as in checking or saving account. We’re talking about the ownership type, such as single, joint, etc.
The ownership category of an account affects FDIC coverage. The chart below may help you understand how each category impacts coverage limits.14
Type of Account | FDIC Insurance Limit |
|---|---|
Single accounts | Up to $250,000 per account owner |
Joint accounts | Up to $250,000 per account co-owner |
Corporate accounts | Up to $250,000 per corporation |
Certain Retirement accounts | Up to $250,000 per account owner |
Revocable Trust Account | Up to $250,000 per beneficiary |
Irrevocable Trust Account | Up to $250,000 per account |
How to Get the Most Out of FDIC Coverage
FDIC insurance limits may seem like an obstacle if you’re trying to protect large amounts of cash. But they don’t have to be.
Here are a few tips that may help you get the most out of FDIC coverage:
Open accounts at multiple banks: Since the FDIC limits insurance coverage by institution, you could seek additional coverage by opening accounts at different banks. For example, you may keep $200,000 in deposits at one bank and another $150,000 in deposits at another. This means the deposits in both accounts are fully covered, just at separate banks. One thing to note with this approach is the increased complexity of managing accounts across multiple banks. Staying organized is key to keeping everything running smoothly.
Have accounts in different ownership categories: Remember that ownership and account type also factor into FDIC insurance. To help maximize your coverage, consider adding a joint owner to an account or opening a different account type, such as an Individual Retirement Account.
If you’re unsure of the best way to go about increasing your FDIC insurance coverage, consult with a financial advisor about your situation.
Benefits of FDIC Insurance
So, why should you look for a bank that’s FDIC insured?
FDIC insurance promotes financial stability and helps ensure that your bank going under won't leave you in a lurch. Silicon Valley Bank depositors got access to their money just three days after the bank failed.15
It may also alleviate stress since you know your money is secure in a Member FDIC bank.
Final Thoughts
Choosing a bank that is FDIC insured is a smart way to protect your money and reduce your risk of loss if the bank ends up failing like First Republic Bank or Silicon Valley Bank did.
Once you open an account with an FDIC-insured bank, the bank immediately protects your deposits up to the limits.
Common FDIC Insurance Questions
Still have questions? Here are answers to some frequently asked questions about FDIC insurance.
Are online banks, like Jenius Bank, FDIC insured?
As the digital banking division of SMBC MANUBANK, Jenius Bank deposits are insured, but that doesn’t mean every online bank is. Jenius Bank and SMBC MANUBANK deposits are combined for purposes of calculating FDIC insurance limits.
Before you open an account, do your research, and make sure the bank is an FDIC member.
Is money in a foreign bank covered by FDIC insurance?
The FDIC typically only covers deposits in U.S.-based accounts. If you have money in a foreign bank, FDIC insurance may not protect those funds.