What Is FDIC Insurance? Limits and More

FDIC insurance isn't usually a hot topic, but when it comes to protecting your money, it's smart to at least know the basics. Even though I'm in the financial industry, it wasn't top of mind for me until my grandparents asked me for help when they were getting their affairs in order. They had their savings in many accounts and were tired of having 10 different statements from 10 different banks. They wanted to consolidate and simplify their cash holdings but worried that if they put too much in one bank, they'd lose FDIC insurance coverage.

Their situation isn't that uncommon. There are a lot of misunderstandings about FDIC insurance and how it works. One is that the most insurance coverage you can get in any one bank is $250,000. Another is that if you're an individual with $1 million in savings, for example, your only option is to open accounts in four different banks to get FDIC insurance on the full amount.

It's not surprising that these misunderstandings exist. You often see in a bank's fine print that the FDIC insurance limit is $250,000. That may be true on the surface, but you have to dig a little deeper because how much FDIC insurance coverage you get in any one financial institution depends on several factors, including the type of account and how the account is owned. So it's actually possible to get much more FDIC insurance even in one bank. To help my grandparents understand, I started with the basics. Here's what you need to know.

The FDIC—short for the Federal Deposit Insurance Corporation—is an independent agency of the U.S. government that protects you against the loss of your deposits in an FDIC-insured bank or savings association that fails. If your bank fails, FDIC insurance covers your accounts dollar-for-dollar, including principal and any accrued interest through the date of the insured bank's closing, up to the insurance limit.

When you think of bank accounts, you probably think of checking and savings accounts, but FDIC insurance covers all types of deposit accounts, including:

• Checking accounts
• Savings accounts
• Negotiable Order of Withdrawal (NOW) accounts
• Money market deposit accounts (MMDA)
• Time deposits such as Certificates of Deposit (CDs)
• Cashier's checks, money orders, and other official items issued by a bank

The type of account you have is important in determining FDIC insurance, but another factor is account ownership. Here are some different account ownership categories:

• Single accounts owned by one person
• Joint accounts owned by two or more people
• Certain retirement accounts such as IRAs and self-directed defined contribution plans
• Trust accounts such as irrevocable trusts and revocable trusts
• Employee benefit plan accounts
• Corporation/partnership/unincorporated association accounts
• Government accounts

Both the type of account and the type of account ownership determine how much FDIC insurance you can have in any one insured financial institution.

The standard deposit insurance coverage amount is $250,000 per depositor, per insured bank, for each account ownership category at a bank. So let's say you have a checking and a savings account in the same bank, in your name only. Those would be considered single accounts owned by one person, and the balances would be added together and insured up to $250,000. Even if your accounts were at separate branches of the same insured bank, they'd be added together under the $250,000 limit.

But the FDIC does provide separate insurance coverage for deposits held in different ownership categories. This means you may qualify for more than $250,000 in insurance coverage if you have funds deposited in different ownership categories and all FDIC requirements are met.

Here's an example: Let's say you have $250,000 in a savings account in your name, $250,000 in a retirement account, and you and your spouse have $250,000 in a joint account all in a single FDIC insured bank. Each of those accounts have a different "ownership," so each one is covered separately, and you'd have a total of $750,000 in FDIC deposit insurance.

It's important to understand that with FDIC insurance, we're talking about cash in deposit accounts. FDIC insurance doesn't cover non-deposit investments or investment products, even if they were purchased at an insured bank. These include:

• Stock investments
• Bond investments
• Municipal securities
• Mutual funds
• Life insurance policies
• Safe deposit boxes or their contents
• U.S. Treasury bills, bonds, or notes
• Exchange traded funds
• Annuities
• Crypto

Stocks, bonds, and other investments are covered by SIPC insurance, which has different limits and different categories.

Because the deposit insurance rules are complex, you may want to visit fdic.gov and use the Electronic Deposit Insurance Estimator (EDIE) to calculate your FDIC coverage for FDIC-insured banks where you have deposit accounts.

You can also use the FDIC's estimator for hypothetical situations. For instance, if you'd like to see how much of some assets would be covered by FDIC insurance, you can enter bank and account information and get an estimate on how much would be insured.

Here are a couple of examples to show you how it can work:

1. If you have a single deposit account and a revocable trust account with one beneficiary at the same FDIC-insured bank, both accounts would be separately insured up to $250,000 each for a total of $500,000.
2. If you and a partner or spouse have a joint deposit account with $500,000 at an FDIC-insured bank and you each also have a single account with $250,000, you would each be insured up to $250,000 per account for a total of up to $1 million in FDIC deposit coverage at that institution.

The $250,000 limit applies to each FDIC-insured bank. This means an account holder could have deposit accounts at two or more FDIC-insured banks and be covered at each institution by a separate $250,000 limit.

You may think you'll never have to insure more than the $250,000 limit, but you never know. Maybe you sell a home or get an inheritance and find yourself with more cash than you imagined. Or like my grandparents, consolidating a lifetime of savings could put you over the coverage limit. Whatever the circumstance, it's good to know there are ways to increase your insurance coverage. Here are a few:

• Open accounts at more than one FDIC insured bank.
• Open accounts at the same bank but with different ownership categories, such as a single, a joint, and a retirement account.
• Add beneficiaries to your account. When you add beneficiaries, the account is insured similar to a trust account. Each beneficiary adds $250,000 of coverage up to a maximum of $1,250,000 for five beneficiaries or more.
• Open a brokerage account that offers a CD network. This means you could buy several CDs from different banks through your single brokerage account. You'd have the benefit of a single account but with FDIC coverage up to the limit for each bank.

So, as my grandparents discovered, you have options. Understanding this helped them simplify their banking and accounting.

It's easy to find out. The bank itself can provide the information you want. You can also use the FDIC's BankFind tool to look up your bank or credit union.

I'm happy I can provide this kind of information not only to my family members, but to my readers. With so many financial myths and misunderstandings, it's important to get answers from a trusted source. For instance, the Money Talk Newsletter on LinkedIn offers sound financial insights based on time-tested principles. Check it out for information on a whole range of financial topics. And for complex personal financial questions, a trusted financial advisor is always a good idea.