If you’ve ever listened to the radio or watched television, chances are you’ve heard a commercial for a bank where a voice at the end says something about being FDIC-insured. If you’ve never stopped to look it up, FDIC stands for Federal Deposit Insurance Corporation, and it is the federal agency that insures the money that Americans put into their commercial bank accounts. Even if you know that, though, you may still wonder just how much FDIC insurance covers in the event of a bank collapse or other serious problems with the financial system.
As a financially savvy consumer, it’s important to know the answer to this, as well if there are ways to maximize your coverage and what assets you should put into FDIC-protected accounts. If you have questions about how to bank most efficiently and safely, you should consider talking to a financial advisor. SmartAsset can help you find one with our free financial advisor matching service.
How Much Does FDIC Insurance Cover?
The general rule is that the FDIC covers $250,000 per depositor, per FDIC-insured bank, per ownership category. This applies to both principal, which is the money that you have deposited in your account, and any money that you’ve earned as interest since depositing your money.
It’s important to note that not all accounts at a bank are eligible for FDIC insurance. Covered products include:
- Checking accounts
- Negotiable order of withdrawal accounts
- Savings accounts
- Money market deposit accounts
- Time deposits, like certificates of deposit
- Cashiers checks and money orders
FDIC insurance does not apply to these products, however:
- Mutual funds
- Life insurance policies
- Municipal securities
- Safe deposit boxes or their contents
- U.S. Treasury bills or bonds (the full faith and credit of the U.S. government does back these)
You may get non-covered products through a bank or financial institution that advertises some of its products as FDIC-insured. You’ll want to check with someone at the bank before you buy a product so you know whether or not it is FDIC-insured.
Are There Ways to Maximize FDIC Insurance Coverage?
There are two basic ways to maximize your FDIC insurance. The first is to open accounts at different banks. You could have one account with up to $250,000 at Citibank and one with up to $250,000 at Bank of America. The FDIC will insure both of these accounts. It’s important to note, though, that different branches of the same bank are considered one bank. Thus, you can’t open one Chase account in Cleveland and one in New York and expect the FDIC to insure both.
The other way to maximize FDIC insurance is to have accounts at the same bank in different ownership categories. You get up to $250,000 in coverage for each ownership category, even within the same bank. The ownership categories recognized by the FDIC are:
- Single accounts: Any account owned by one person only, including checking accounts, savings accounts, money market deposit accounts and CDs. This also includes business accounts in which one person is the sole proprietor.
- Certain retirement accounts: Covered retirement accounts include traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP IRAs, self-directed 401(k)s, profit-sharing plans, self-directed Keogh plans and section 457 deferred compensation plans.
- Joint accounts: Accounts opened by multiple people, including spouses. The FDIC insures $250,000 per person in joint accounts and divides money equally among owners for this purpose.
- Revocable trust accounts: A deposit account that identifies one or more people as beneficiaries who will get the contents of the account when the owner dies.
- Irrevocable trust accounts: A deposit account established by a statute or written trust agreement in which the owner cedes power to change or cancel the trust.
- Employee benefit accounts: Deposits of a pension plan or other defined benefit plan that is not self-directed.
- Corporation, partnership, or unincorporated association accounts: Deposits owned by corporations, partnerships and unincorporated associations. This includes both for-profit and not-for-profit organizations.
- Government accounts: Deposits owned by federal, state or local government, or an Indian tribe.
Married couples will have another option for maximizing their FDIC insurance coverage. You and your spouse each can open individual accounts at a single bank, resulting in each of you having up to $250,000 FDIC-insured. You can then also open a joint account and each have $250,000 insured in that account. Between those three accounts, you could have up to $1 million FDIC insured at one bank.
What Assets Should You Put in FDIC-Protected Accounts?
You should use FDIC-insured accounts for any money that you want to protect. For many, this will mean any money that you have not invested in the stock market. If you are willing to risk losing money, you’d be better served to invest that money in stocks or bonds. Though these also carry risk, you’ll at least also have the potential to make returns.
If you’re saving money for a rainy day fund, though, put it in an FDIC-protected account. Otherwise, you could end up losing the nest egg you thought you had, should something bad happen to the institution you are using.
The Bottom Line
FDIC insurance covers up to $250,000 per depositor for each ownership category in each distinct bank. You can open accounts at different banks or in different ownership categories at one bank to maximize your insurance coverage. Use FDIC-insured accounts for any money that you want to protect against potential market shakeups or bank closures.
Tips for Protecting and Growing Your Assets
- If you’re starting to think seriously about how to maximize your financial efficiency, you should consider finding a financial advisor. SmartAsset can help with our free financial advisor matching service. You’ll answer a few questions and we’ll match you with up to three advisors in your area. We have fully vetted all of the advisors on our platform, and they are all free of disclosures. From there, you can interview your advisor matches to decide if any of them is right for you.
- One type of FDIC-insured account is a certificate of deposit. Check out our list of the best CD rates in the country. Though not the most high-reward option, CD accounts are low risk.
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