Navigating FDIC Insurance and Coverage Limits to Protect Your Savings

Federal Deposit of Insurance Corporation or FDIC Insurance coverage protects your money deposited in your bank if the bank fails but with certain limitations of ownership and regulations. So you can relax and invest for a better future with a sense of security in mind. But what is FDIC meaning? It is an independent federal agency that insures the deposits of the US banks and is known for being prudent in the event of bank failure or bankruptcy. 

Since the introduction of FDIC insurance coverage, banks are safe and stable options to save your money for the long term. However, many individuals are skeptical of depositing in banks seeing the records of recent events of financial institution’s failure i.e. a few banks were unable to return the money that the customers had deposited in their bank. 

So, it's your job to research and check whether the bank is federally insured before you decide to invest or deposit your saved money. Additionally, even Credit Unions offer financial protection through the National Credit Union Administration. Talking about FDIC, it will cover only $250,000 per depositor, ownership category, and remember FDIC can protect your money only if banks fail and not in the case of theft or similar events. 

Do you want to gain more information about FDIC meaning, its coverage limit, and how it works? If yes, then you have come to the right place, let’s have a closer look at all the factors of FDIC insurance for your better comprehension. 

What Does FDIC Insured Mean?

When it comes to depositing money in a bank, often individuals are worried about the risk associated with the chances of not receiving their return for the money deposited. And, this is the reason why having FDIC insurance is important, which means federally insured banks will keep your money safe and secure even when any institution goes bankrupt. 

Though FDIC was introduced in 1933 to solve the continuous bank failures during the Depression. Dozens of banks saw a downfall and vast failure in the recession. Hence, this initiative was taken to promote confidence among customers through the banking system supported by insurance for customer deposits. 

However, in 2023 Silicon Valley Bank in California, Signature Bank in New York, First City Bank of Florida, and Almena State Bank in Kansas observed failure in the recent time. But the good news is, due to FDIC insurance coverage, not a single dollar was lost by depositors. 

Though many depositors are mistaken by thinking that banks are insured by FDIC by default. That’s not true! Banks need to apply for FDIC insurance, and like every other insurance it comes with cost and a few regulations included. So does this mean that bank depositors need to pay a monthly fee like the brokerage fees system? No, you don't have to pay fees, and nor does this insurance add to your tax bill. It is the job of the bank to pay the premiums for the customer’s safety. 

FDIC Insurance Coverage

We are sure you have got the clarity of FDIC meaning by now, the next question that arises is what is the coverage limit? How can I plan on depositing money and should I deposit all my money at one bank or divide my savings at multiple sources? We understand your concerns, hold tight we will be discussing all these factors in this guide. 

Talking about FDIC coverage offers insurance for up to $250,000 per depositor, per financial institution, or ownership which refers to the owner of the account. Though, FDIC covers certain bank accounts and other items offered by insured banks. Let’s delve deeper to know if those accounts are protected by FDIC. 

• Certificate of Deposits (CDs)
• Checking Account
• Money market Account
• Savings Account
• Negotiable order of withdrawal account
• Cashier’s checks and money orders

Which Factors are Excluded From FDIC Insurance?

As we mentioned above there is a limitation to FDIC insurance coverage, so let’s have a closer look at the factors that come under the exception, which means things that aren’t insured in the event of bank failures.

• Investments in mutual funds, stocks, and bonds
• Amenities
• Life insurance policies
• Investment loss even when it was purchased through an insured bank or financial institution. 
• Municipal security options
• Contents from a safe deposit house kept at a bank

How to Track Your Money in an Insured Account?

If you are confused about whether all your dollars deposited at the bank are insured by FDIC then you can easily track the status of your money through tools like Electronic Deposit Insurance Estimator. This tool is provided by FDIC, it helps in checking your insurance coverage, right at the moment you put your account details. 

File Complaint

The other option is filing a complaint. Customers can file a complaint as soon as the moment a bank or thrift has occurred. The complaint request can be placed online via the FDIC website. And, bank customers can receive personalized assistance during such events for free by communicating with the agency through phone calls. You just have to call 877-275-3342 or 1-877-ASKFDIC. 

Before you file a request, make sure that FDIC protects when the bank fails, not in the event of theft, fraud, or similar loss. These kinds of losses are directly managed by banks alone, and FDIC has no jurisdiction against identity theft. 

How does FDIC Work When a Bank Fails?

When a bank fails meaning, when banks or financial institutions lose the ability to pay back their debts or return deposits to customers, a bank regulator would soon close the institution. This is the time, FDIC will step in and take responsibility to protect the deposits of bank customers in two methods. 

The first method includes paying or giving access to the affected customers up to the limited insurance meanwhile assuming the control over debt and assets of the bank. In the second scenario, the FDIC will become the receiver of the failed bank for selling and collecting assets, settling down the debts, and managing insured deposits of the bank. In short, FDIC arranges for healthy banks to obtain failed banks. 

A Glimpse into a Few American Bank Failures

For instance, in May 2023, a San Francisco-based First Republic Bank failed. Though FDIC  arranged a sale to a big commercial bank before termination, JP Morgan Chase Bank will now take over the deposits and assets of California Bank. All 84 branches of First Republic Bank will now reopen as Chase Bank’s branches and the deposit customers of failed banks will be the customers of Chase Bank. And, the customers of failed banks will get access to the offerings of Chase Bank with federally insured deposits. 

First Republic Bank is the third high-profile bank failure in 2023. In March 2023, the lender of the tech industry Silicon Valley Bank in Santa Clara California failed and 2 days later another Singapore bank in New York failed. In both circumstances, FDIC created temporary-based bridge banks to arrange former institutions’ deposits and assets to take time so that FDIC can sell the banks appropriately. 

Furthermore, FDIC and Federal Reserve stated that all the customers of Silicon Valley Bank and Signature Bank will have access to all their deposit offerings whether it is insured or uninsured, though excluding uninsured debtholders. Finally, on March 20, 2023, Flagstar Bank obtained Signature Bank and on March 26, First Citizen Bank acquired Silicon Valley Bank. 

FDIC’s precautionary step to prevent frequent bankruptcy

As a precautionary step, the Federal Reserve has created a program to prevent such a crisis. In March 2023, a new program was introduced that offers loans for a tenure of 1 year to banks and Credit Unions. This program focuses on providing additional cash to prevent bank needs and quickly sell investments the same way Silicon Valley banks did to assist deposit bank customers. 

Generally, the rates of bank failures are very low though recently there has been a spike in the USA during and after the economic recession. Since 2001, the US has faced the failures of 564 banks, and the majority of the failures occurred due to the recession period in 2007-2008. Though, the good news is now there are 4,700 FDIC-insured banks to prevent major bank failure crises. Silicon Valley, First Republic Bank, and Signature Bank were the first insured banks to fail. 

Read Also:- What is Health Insurance? Types, Benefits, and How It Works

FDIC Limitations and Categories with Ownership

Depositing in an insured bank is safe but understanding FDIC insurance coverage is extremely important. We are listing below a few categories outlined by the FDIC and Federal Reserve to set coverage limitations. 

Coverage per depositor/ per Institution

FDIC insures deposits for one person that owns an account in one insured bank. The total coverage limit of $250,000 is offered when a depositor owns one bank and is not from a different insured bank category. But, if a depositor owns bank accounts at different banks with the same bank insurance then they qualify for the coverage limit offered by FDIC. 

Per Ownership Insurance Category

Ownership category depositors refer to those who own a deposit account. The differentiation under this category includes single i.e. accounts held by one person and joint accounts held by 2 people, it could be a married couple. There are other categories involved in the FDIC category like a few retirement accounts like IRAs, employee benefit plan accounts, trust accounts, and more. 

However, money held in different kinds of categories has distinct coverage offered. If a person has multiple accounts in all insured bank accounts, then he or she can qualify for coverage of more than $250,000 only if their funds are in an account that falls under a different ownership category and if the essential requirements are met for the category. And, when the account is held by 2 people like in a joint account in an insured bank then they benefit from double coverage i.e. a total of $500,000 - $250,000 for each person. 

To make it easier for you to understand FDIC coverage limits and categories, let’s have a glimpse of all the categories altogether. 

Insurance category	Coverage Limit
Joint Accounts owned by 2 person	$250,000 per person
Revocable trust accounts	$250,000 per depositor and per unique beneficiary
Single account owned by one person	$250,000 per owner
Retirement accounts	$250,000 per owner
Corporation partnership, and unincorporated association accounts	$250,000 per Corporation partnership, and unincorporated association
Irrevocable trust account	$250,000 per beneficiary subject to account
Government accounts	$250,000 per official custodian
Employee benefit plan-based accounts	$250,000 per plan account owner

How much Does the FDIC Insure?

While considering various banks' insured accounts, individuals have concerns like how much does the FDIC insure? We understand your concern specifically after seeing a spike in the number of failed banks. To help you understand FDIC coverage limits more clearly, we have listed a few examples. 

When you are single and you put your money in one bank

Let's say you are single and you decide to put all your savings into one bank. 

• $100,00 in a savings account
• $50,000 in a checking account
• $200,000 in CDs

Calculating all your accounts, you have a total of $350,000 in one insured bank as a single depositor and single owner. In case, your bank fails as per the FDIC coverage limit you will obtain the protection of only $250,000 and you are about to lose your $100,000. 

Sounds frightening? Don't worry, what you need to know is FDIC coverage insures your money based on where you keep it and on the ownership category that you possess. The ideal way to get protection over your deposited money is to spread your money across different insured banks or institutions. For this, you can consider the next situation. 

You fall under single ownership, but you have spread your money into different institutions

Even in this situation, you are the single deposit owner, but you have divided your savings into different insured banks like:

• $200,00 in a saving account in Bank 1
• $50,00 in a checking account in Bank 1 
• $250,000 in CDs in bank 2

This makes a total of $500,000 deposited as a single owner in two different institutions. In this scenario, you have $250,000 in each bank which makes your money protected as per FDIC coverage limitation. 

While, if you are married you can benefit from additional coverage offerings which we will be discussing in another situation example, keep reading. 

You are married, and you put your money together in the same bank account

Depositing money with a joint account has an additional coverage benefit for couples. You can easily plan out your account and get complete protection over your savings. Let’s say you deposit:

• $500,000 in a joint savings account
• $250,000 as CDs under a single ownership

All the money deposited in one insured bank will be protected by FDIC even with a total of $750,00. A joint account is one of the ownership categories that we discussed above. Wherein you and your spouse can open an account together and r will be protected with a coverage of $250,000 per owner. Another category includes single ownership with a certificate of deposits offering you coverage of $250,000. 

We hope these examples of different ownership categories have given you clarity on your concern - how much does the FDIC insure?  This isn’t the only perk. You can strategize and combine different categories to cover maximum benefits. Remember, you are offered different coverage options to protect money in unusual events. 

If you have a risk of exceeding the coverage limit of $250,000 under one institution or ownership category then consider spreading your money with different banks of the same insurance to get yourself saved from receiving protected funds irrespective of bank failure in the future. 

Read Also:- A Complete Overview of Insurance – Types and Definition

Bottom Line

FDIC insures deposits of all the bank customers in the scenario of bank failure. As long as a bank is insured by FDIC, the agency makes sure every depositor gets coverage of a $250,000 limit and more depending on the category that you fall in. 

Ensure the bank you decide to deposit money is FDIC insured to acquire confidence in your financial growth journey and expect stability without any hurdles.

Frequently Asked Questions