What Is FDIC Insurance and What Are the Coverage Limits?

FDIC Insurance

With FDIC insurance, your money held in a bank is protected by the federal government if your bank fails. But there are coverage limits.

Key takeaways about FDIC insurance

  • If your federally insured bank fails, Federal Deposit Insurance Corp. insurance keeps your money safe.
  • The FDIC insures up to $250,000 per depositor, per institution and per ownership category.
  • FDIC insurance covers deposit accounts and other official items such as cashier’s checks and money orders.
  • If a bank is federally insured, it will have the FDIC insurance logo on its website.

Your money is secure and reliable with banks. Nevertheless, recent history has served as a reminder that these institutions are subject to failure, which would imply that they would be unable to fulfil their responsibilities to those who had deposited money with them or to those who they had lent money to. Continue reading to find out more about what occurs when a bank collapses.

Customers’ funds are safeguarded in the unlikely event that a bank collapses as long as the institution is federally insured. The Federal Deposit Insurance Corporation is the supporter of a bank that is federally insured. Through the National Credit Union Administration, credit unions also provide protection. Up to $250,000 is insured by the FDIC for each depositor, each institution, and each ownership type. Only when a bank collapses does FDIC insurance begin to pay out.

What it means to have FDIC insurance

If your bank collapses, your money is protected up to a specific amount thanks to FDIC protection. In reaction to the numerous bank failures that occurred during the Great Depression, the FDIC was founded in 1933. It was established to provide customer deposit insurance and boost public trust in the banking sector. Due to the Great Recession, dozens of banks failed. First Republic Bank (California), Silicon Valley Bank (California), Signature Bank (New York), and Almena State Bank (Kansas) all declared bankruptcy in 2023. In 2020, Ericson State Bank (Nebraska), The First State Bank (West Virginia), First City Bank of Florida, and Silicon Valley Bank (California) also declared bankruptcy. Nevertheless, since the FDIC was established, not a single cent of insured savings has been lost.

Banks are not automatically insured. They submit an application for FDIC insurance, which, like other insurance, has a fee. However, neither you nor your taxes are used to cover the cost. Premiums are paid by the bank.

FDIC insurance: What’s covered

The FDIC provides up to $250,000 in insurance for each depositor, institution, and ownership category (the owner of the account is referred to as the ownership category; continue reading to learn more about this). The following deposit accounts and other official materials issued by an insured bank are covered by FDIC insurance:

FDIC insurance: What’s not covered

Here’s what isn’t protected by the FDIC[3]:

  • Annuities.
  • Investments in stocks, bonds or mutual funds.
  • Losses incurred from investments, even if they were purchased from an insured bank.
  • Life insurance policies.
  • Contents of a safe deposit box housed at a bank.
  • Municipal securities.

U.S. Treasury bills, bonds and notes also aren’t covered by FDIC insurance, but they are backed by the full faith and credit of the federal government.

How to check that all money in your accounts is insured

If you can’t immediately determine if all of your cash is protected, the FDIC provides a tool called the Electronic Deposit Insurance Estimator that, after entering your account information, will display your precise deposit insurance coverage. A service centre for complaints and queries is also available through the FDIC.

What happens when a bank fails

A bank regulator shuts the institution if it fails, for example by being unable to repay debts or restore client deposits. In general, the FDIC intervenes to protect bank customers’ cash in two ways: by paying (or granting access to) monies to impacted consumers up to the insurance limit and by taking over the bank’s assets and liabilities. In the second position, the FDIC assumes the title of “receiver” of the bankrupt bank in order to manage insured deposits, sell or collect assets, and pay obligations. Usually, the FDIC makes arrangements for a strong bank to buy out a failing one.

San Francisco-based First Republic Bank declared bankruptcy on May 1, 2023. JPMorgan Chase Bank will take over all deposits and the majority of the assets of the California bank since the FDIC was able to arrange a sale of the large commercial bank prior to its liquidation. First Republic’s 84 locations will all reopen as Chase locations, and all of the bank’s clients will transfer to Chase and have access to all of their deposits. Their cash will continue to be federally insured.

The fall of First Republic Bank in 2023 will be the third prominent bank failure. Silicon Valley Bank, a lender to the tech sector, fell on March 10 in Santa Clara, California, while Signature Bank in New York failed two days later. In both instances, the FDIC temporarily established “bridge banks” to keep the assets and deposits of the previous institutions while it waited to sell the banks. The Treasury, Federal Reserve, and FDIC announced in a joint statement on March 12 that all clients of Silicon Valley Bank and Signature Bank would have access to all of their savings, insured and uninsured. That didn’t include certain unsecured loan holders and stockholders. Flagstar Bank purchased Signature Bank on March 20 while First Citizens Bank bought Silicon Valley Bank on March 26.

The Federal Reserve launched a new programme on March 12 that provides loans of up to one year to banks and credit unions as an additional precaution against future crises. The goal of the Bank Term Funding Programme is to offer a second source of funding so that banks won’t have to swiftly sell off investments, as Silicon Valley Bank did to satisfy depositors.

Despite occasional rises during and after a recession, very few banks really collapse. There have been 564 bank failures since 2001, the many of which were brought on by the recession that lasted from 2007 to 2009. As of December 2022, there were around 4,700 banks that were FDIC-insured. Since October 2020, three banks have failed: Silicon Valley Bank, Signature Bank, and First Republic Bank.

Per depositor, per institution: This indicates that the FDIC covers deposits that a single individual (the depositor) has in a single insured bank (the institution), apart from any deposits that person may possess in additional, distinct insured banks. Deposits owned by a person in many branches of the same insured bank are added up to reach the $250,000 cap.

Per ownership category: The account’s owner is simply referred to as the ownership category. The distinction between a single account, which belongs to one person alone, and a joint account, which is shared by two or more individuals, is the simplest. Some retirement accounts, such as IRAs, trust funds, and accounts for employee benefit plans are among the other forms of ownership.

Money that falls under several ownership classifications has its own coverage. Therefore, if monies are in accounts with various ownership categories and other conditions are satisfied, a person with numerous accounts at an insured bank may be eligible for coverage of more than $250,000. Additionally, if two persons jointly possess an account, for instance, that account is protected up to $250,000 per person, for a total of $500,000.

Examples of FDIC insurance limits and coverage

Consider some examples to understand the limits of FDIC coverages.

1. You’re single, do your banking in one place and you have:

  • $50,000 in a checking account.
  • $100,000 in a savings account.
  • $200,000 in certificates of deposit.

That’s a total of $350,000 deposited in one bank as one depositor (you), at one institution (your bank) and in one ownership category (single). If your bank were to fail, you’d lose $100,000 because the FDIC would cover only up to $250,000.

Don’t fret, though, because the next-most important thing to know about FDIC coverage is that you can be insured for much more depending on where you keep your accounts and how they are owned. One way to make sure all of your money is insured is to spread it across multiple institutions. Consider the next example.

» MORE: When to consider a joint bank account

2. You’re single but you do your banking at two banks, and you have:

  • $50,000 in a checking account at Bank 1.
  • $200,000 in a savings account at Bank 1.
  • $250,000 in certificates of deposit at Bank 2.

That’s a total of $500,000 deposited as one depositor (you) at two institutions (two banks) and in one ownership category (single). Since you have $250,000 at one bank and $250,000 at another bank, all of your money is protected.

Take a look at one more example of how different ownership categories affect how your money is insured.

3. You’re married, you both do your banking at the same place and together you have:

  • $500,000 in a joint savings account shared with your spouse.
  • $250,000 in a certificate of deposit in just your name.

That’s a total of $750,000. All of this money is protected. The joint savings account is one ownership category (joint), where both you and your spouse are covered up to $250,000 each since you are two different depositors. The certificate of deposit is in a second ownership category (single), so the depositor (you) is covered up to $250,000 for that account.

There are too many combinations to cover them all here. Just know that you have options to make sure all of your money is insured. If you’re in danger of bumping up against or exceeding the $250,000 limit at any one institution, consider spreading your money across multiple banks so that all of your funds are insured.

How to find out if your bank is FDIC insured

To find out whether your deposits are federally insured, search for your bank on the FDIC’s BankFind tool. You can also look for the FDIC insurance logo on the bank site. Displaying this logo is a requirement for insured banks. You can check the FDIC site to see how the official logo should appear.

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