In this article:
- How Do FDIC Insurance Limits Work?
- How to Insure Bank Deposits Over $250,000
- What Are Alternatives to FDIC Coverage?
If your bank is insured by the Federal Deposit Insurance Corp. (FDIC), your funds will be reimbursed up to $250,000 per account holder and ownership category in the event of a bank failure.
But what if you have more than $250,000 in the bank? Are you at risk? You might be. When your collective bank balances are approaching (or exceeding) the $250,000 mark, you may want to evaluate your options. Here's how to make sure your funds are covered if you have $250,000 or more in your bank accounts.
How Do FDIC Insurance Limits Work?
The FDIC insures funds up to $250,000 per account holder, insured bank and ownership category. Let's unpack this in plain English.
What's Covered Under FDIC Insurance?
FDIC insurance covers checking and savings accounts, money market accounts, certificates of deposit (CDs), negotiable order of withdrawal (NOW) accounts and cashier's checks or money orders issued by the bank. These accounts are covered for up to $250,000 per account holder, per ownership category.
What Isn't Covered?
None of the following types of accounts are covered: stock and bond investments, mutual funds, life insurance policies, annuities, municipal securities, safe deposit boxes (and their contents), and Treasury bills, bonds and notes.
What Is an Insured Bank?
The FDIC insures deposits at participating banks and thrifts. A majority of U.S. banks are FDIC-insured, but check with your bank or prospective bank—or search the FDIC database—if you aren't sure.
What Are FDIC Ownership Categories?
The FDIC recognizes the following account ownership categories:
- Single accounts
- Certain retirement accounts
- Joint accounts
- Revocable trust accounts
- Irrevocable trust accounts
- Employee benefit plan accounts
- Corporation/partnership/unincorporated association accounts
- Government accounts
Here's an example of how multiple ownership categories might work. You have $5,000 in an individual checking account, $10,000 in individual savings, $200,000 in individual CDs and an additional $100,000 in a money market account you hold in a revocable trust. Your $315,000 in account balances is entirely covered under FDIC insurance because your money is split between two account ownership types—individual (single) and revocable trust. By maintaining accounts in multiple ownership categories, you are able to keep your holdings insured at a single bank despite the $250,000 limit.
Note that having different types of accounts within an ownership category doesn't extend coverage. In the above example, you have checking, savings and CDs, but since you're the sole owner of all three, your single account total is $215,000.
How to Insure Bank Deposits Over $250,000
As the example above shows, you can get more than $250,000 in FDIC coverage, but you may have to be strategic about it. Here are a few alternatives to consider:
Open an Account at a Different Bank
FDIC coverage limits are per bank. Opening an account at a new bank—even if it's the same type of account—and moving some of your funds there can help you bring your deposits below FDIC limits and ensure that all of your funds are covered. Rinse and repeat if necessary.
Add a Joint Account Owner
If you add your spouse, partner or family member to your individual account, your FDIC coverage jumps from $250,000 to $500,000, as coverage is per account owner.
Split Funds Between Ownership Categories
Adding a joint owner also puts your joint account into a new ownership category. If you also have individual accounts, they are insured up to $250,000 collectively, while your joint account is insured up to $500,000 ($250,000 each for you and your co-owner). If you or your co-owner have multiple joint accounts, the balances will be added together and insured up to $250,000 for each of you.
Use a Network Bank
Some banks partner together to form reciprocal deposit networks, where deposits to one financial institution can be split between multiple institutions to increase FDIC coverage. The idea works like this: If your deposit is held among 10 different banks, your FDIC coverage limit increases 10 times to $2.5 million. The IntraFi network includes community banks and community development financial institutions nationwide. Wintrust Financial, for example, offers MaxSafe CD and money market accounts that share deposits across a family of 15 community banks for up to $3.75 million in FDIC coverage.
Need help sorting through your FDIC coverage? Talk to your bank. They can explain your current coverage and may be able to help you find ways to keep your funds covered if you're near or above deposit limits. You can also try using the FDIC's Electronic Deposit Insurance Estimator to see how your deposits are insured.
What Are Alternatives to FDIC Coverage?
Relying on FDIC coverage isn't your only option. Here are a few bank alternatives—and an additional insurance option that could extend your current bank's coverage above the $250,000 level.
Find a Credit Union
Not-for-profit credit unions offer many of the same types of accounts that banks do—often with better-than-average interest rates and lower fees. Their deposits are insured through the National Credit Union Association (NCUA), with rules and coverage limits that are similar to what you might find from the FDIC. You'll need to join a credit union to bank there, but it's relatively easy to find a credit union you can join.
Open a Cash Management Account
Cash management accounts are similar to checking accounts, but they're typically offered by investment firms. Instead of housing your funds at a single bank, your money is spread across multiple banks, multiplying your FDIC coverage. Cash management accounts operate on much the same principle as reciprocal bank deposits. These accounts typically pay interest and allow check writing and/or debit card transactions, making them a versatile alternative to regular checking or savings accounts.
Look for Depositor's Insurance Fund Coverage
Some banks offer additional deposit insurance through the Depositor's Insurance Fund (DIF), a private, industry-sponsored insurance fund. This coverage kicks in where the FDIC leaves off and includes all deposits plus interest without limits. Ask your bank whether they're members of DIF, or if they offer any other additional coverage for deposits that exceed FDIC limits.
Are You Covered?
On balance, having more than $250,000 in the bank is a good problem to have. Spreading the wealth between financial institutions, considering alternative ownership categories or looking for additional insurance through reciprocal deposits or private insurance can all help keep your funds covered in the unlikely event that your bank fails. Even if your funds are not approaching the $250,000 limit, you may want to review the coverage at your bank, credit union or brokerage firm to ensure you aren't at risk—and to set your mind at ease.
