What do I need to know about FDIC insurance?

If you’ve had a bank account or visited a bank in the United States you’ve probably seen the letters “FDIC” before. FDIC stands for the Federal Deposit Insurance Company, a federal agency that provides insurance to banks that protects depositors in the unlikely event the insured bank fails.

FDIC insurance is important because it means that you don’t need to worry about the safety of your money when you deposit it at an FDIC-insured bank (up to a limit, more on this below). If the bank fails, the FDIC guarantees that your deposits (in certain categories, more on this below too) are safe and you will have access to the money.

How do I know if my bank is FDIC-insured?

You can also check on the FDIC’s website. They have a tool for searching called “BankFind” that anyone can use to search for their bank and confirm if they are FDIC-insured or not. You can find it here: https://banks.data.fdic.gov/bankfind-suite/bankfind

What types of accounts does the FDIC insure?

FDIC insurance covers depository accounts. For most people that means savings accounts and checking accounts. The FDIC also insures certificates of deposit (CDs), money market deposit accounts (MMDAs), and cashier’s checks, money orders, or other items issued by the bank.

FDIC insurance does not cover investments (stocks, bonds, mutual funds, crypto assets, etc), insurance products (annuities or life insurance policies), or safe deposit boxes and their contents.

You can find a detailed list of exactly what FDIC insurance covers here: https://www.fdic.gov/resources/deposit-insurance/financial-products-insured/

Do I need to apply for FDIC insurance?

No, you don’t. Money in an FDIC-insured bank in one of the covered categories listed above is insured automatically (up to a limit) when you open the account.

What if I bank at a Credit Union? Am I covered?

Credit unions are not insured by the FDIC. Instead, they have their own depository insurance that is run by the National Credit Union Administration (NCUA) that operates very similarly to the FDIC with almost identical deposit insurance coverage and limits.

How much money does the FDIC insure?

The answer to this can get complicated. Here’s how the FDIC puts it: “Deposits are insured up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category.” For most people, that’s enough to feel protected. If you have less than $250,000 in depository accounts at an FDIC-insured bank, you’re covered. But if you have more, here’s how this works out.

“….per FDIC-insured bank” This is the easiest limit to understand. If you have $300,000 in cash that you keep at Bank ABC then $250,000 of that is FDIC-insured and $50,000 of it is not insured. If you move $50,000 from Bank ABC to Bank XYZ then you have $250,000 in insured deposits at Bank ABC and $50,000 in insured deposits at Bank XYZ. Now your entire $300,000 is insured, by splitting it between two FDIC-insured banks.

“…per depositor” If you are the sole owner of a savings account at Bank ABC that holds $450,000 then you have $250,000 covered by FDIC insurance, and $200,000 that is not insured. However, if that is a joint account (with your spouse, for example) then there are now two depositors on the account. Since the FDIC limit is $250,000 per depositor the account is insured for $500,000 (2 x $250,000) and the entire $450,000 at Bank ABC is FDIC-insured.

“…per ownership category” This is the most often misunderstood part of FDIC insurance. The most important thing to know is that different deposit product types (CDs, checking accounts, savings accounts) are not the same thing as different ownership categories. You cannot increase your FDIC insurance limit by simply opening multiple checking accounts, or a checking account and a savings account and a CD, at the same bank.

The FDIC has 14 different “ownership categories” the most common of which are single accounts, joint accounts, revocable trust accounts, irrevocable trust accounts, business accounts, and certain retirement accounts (the full list can be found here: https://www.fdic.gov/resources/deposit-insurance/diguidebankers/general-principles/index.html). Each separate account ownership category is eligible for $250,000 in FDIC insurance.

Let’s put it all together with an example. (There’s a LOT of detail here and if you’d like to skip ahead to finding out if all your deposits are insured you can use the FDIC calculator right here: https://edie.fdic.gov/calculator.html? or you can schedule a chat session with a BrightDime financial coach and they’ll walk through it with you.)

Ok, here we go. Jane and John are married and have several bank accounts at Bank ABC and Bank XYZ. They have:
1. A joint savings account at Bank XYZ with $275,000
2. John has an individual savings account at Bank XYZ with $100,000
3. Jane has an individual checking account at Bank ABC with $200,000
4. Jane and John have a joint CD at Bank XYZ with $575,000

In total, that’s $1,150,000. It’s a good problem to have, but Jane and John aren’t sure how much of their money is FDIC-insured.

Their joint savings account at Bank XYZ is in the “joint account” ownership category with 2 depositors. That means it is insured up to $500,000 so the full $275,000 is FDIC-insured.

John’s individual savings account at Bank XYZ is in the “single account” ownership category with a single depositor so it is insured up to $250,000. The full $100,000 is insured.

Jane’s individual checking account at Bank ABC is in the “single account” ownership category with a single depositor so it is insured up to $250,000. The full $200,000 is insured.

Their joint CD at bank XYZ is in the “joint account” ownership category with 2 depositors. That’s means it is insured up to $500,000. However, their joint savings account at XYZ is in the same ownership category. That means the $275,000 in the savings account and the $575,000 in the CD are combined. The combined balance of $850,000 is only insured up to the $500,000 limit.

This leaves Jane and John with $800,000 covered by FDIC insurance, and $350,000 in uninsured deposits.

If Jane and John move their joint savings account from Bank XYZ to Bank ABC, the full $275,000 in the joint savings account will now be FDIC-insured, and $500,000 of the $575,000 joint CD at Bank XYZ will now be insured. By shifting that one account to the other bank, they went from having $800,000 insured to having $1,075,000 insured.