How FDIC Insurance Coverage Is Calculated

Learn whether your accounts would be at risk if your bank failed.

When the economy slumps and one or more financial institutions fail, many savers begin to worry about the stability of their own bank—and what will happen to their own checking, saving, and other bank accounts. Created to avoid a run on the banks, the Federal Deposit Insurance Corporation (FDIC) can provide some peace of mind if you know what it does and how to maximize the protection of your money.

Nobody can guarantee the success or longevity of a particular bank, but the FDIC, an independent government agency, does the next best thing by insuring customers' deposits in most U.S. banks and savings associations. If an insured institution fails—in other words, closes because it can't meet its obligations—the FDIC reimburses qualified account owners dollar-for-dollar for losses, but only up to the insurance limit.

Currently, the basic FDIC insurance limit is $250,000 per depositor (account holder), per insured bank. This amount includes principal and accrued interest through the bank's closing date.

Who and What Is Covered?

You don't have to be a citizen, a U.S. resident, or even a person to be covered by FDIC insurance. All depositors, including businesses and other entities, are eligible for coverage.

FDIC insurance covers the following types of deposit accounts established with insured institutions:

  • checking
  • savings
  • NOW (essentially, interest-earning checking accounts)
  • money market deposit accounts (MMDAs)
  • certificates of deposit (CDs), and
  • cashiers' checks, money orders, and other "official checks" drawn on the institution.

The easiest way to know if your bank or savings association is insured is to look for the official FDIC sign—it must be displayed at each teller window. You can also call the FDIC toll-free (877-275-3342) or use the FDIC's "Bank Find" feature to look up your bank.

What Isn't Covered?

The following aren't FDIC-insured, even if they are offered by an insured bank:

  • mutual funds
  • annuities
  • life insurance policies
  • stocks
  • bonds
  • treasury securities
  • other investment products, and
  • contents of a safe deposit box (though you might be covered by the bank's private insurance or your homeowner's insurance).

What About Credit Union Accounts?

Deposits in credit unions aren't covered by the FDIC. But federal credit unions are required to be members of the National Credit Union Share Insurance Fund (NCUSIF), administered by the National Credit Union Administration (NCUA). This provides deposit insurance for credit unions in much the same way as the FDIC provides insurance for banks.

Look for the NCUA logo at your credit union's teller stations. The standard maximum limit is $250,000 per individual account holder, per federally insured credit union.

How FDIC Insurance Coverage Is Calculated

Again, the basic FDIC insurance limit is $250,000 per depositor (account holder), per insured bank. and includes principal and accrued interest through the bank's closing date.

Note that coverage is calculated "per bank," not per account. That means that the insurance limits are applied to the combined balances of all accounts held by a depositor at a single bank. Not only that, but a single bank includes all of its branches and its internet division, even if it does business under a different name. Accounts held at separately chartered banks are insured separately.

However, it's possible to have more than $250,000 fully insured with a single bank, if your money is strategically divided among the different categories of account ownership. As long as you stay under the limit for each ownership category, you can safely keep much more than $250,000 in one bank.

These are the four most common categories of ownership:

Single Accounts

These are accounts in only one person's name. All accounts owned by the same one person at the same insured bank are totaled and insured up to $250,000. For example, if you have a savings account with a $200,000 balance and a CD of $80,000, you would be uninsured for the $30,000 that exceeds the $250,000 limit.

Even in community property states, deposit accounts in either spouse's name alone are considered single accounts for FDIC insurance purposes.

Joint Accounts

These are accounts owned by two or more people. Assuming all owners have equal rights to the money in each account, each account holder's share of the joint accounts at the same insured bank are totaled and insured up to $250,000.

For example, let's say you and your spouse hold a joint checking account with a balance of $350,000, and you hold a joint checking account with your daughter that has a balance of $30,000. You would be fully covered because your half of the checking account is $175,000 and your half of the savings account is $15,000, totaling $190,000, which is still below the $250,000 limit.

Rearranging the order of names listed on joint accounts or switching between "and" and "or" on the account title doesn't qualify you for more insurance coverage.

A person's share in a joint account isn't combined with the amounts owned in single accounts to come up with a total; each account holder is entitled to $250,000 of FDIC coverage in single accounts and $250,000 FDIC coverage in joint accounts.

Revocable Trust Accounts

Trust accounts are treated differently. Only the interests of the beneficiaries to the trust are insured; owners of a trust account aren't insured. Generally speaking, funds are insured up to $250,000 for each beneficiary, per account owner.

So, for example, if a couple (mother and father) had $800,000 in a qualified living trust account naming two children as equal beneficiaries, the entire account balance would be fully insured. This is because each beneficiary is covered up to $500,000—$250,000 via the mom and $250,000 via the dad. With a balance of $800,000, the account does not exceed the combined $1,000,000 limit.

Two Types of Trust Accounts

The two types of revocable trust accounts are:

  • payable-on-death (POD) accounts, which allow you to name the beneficiaries on the account signature card, and
  • living trusts, which are formal legal arrangements created as part of an estate plan.

Here are a few key points about trust accounts that you should be aware of:

  • FDIC coverage on a trust doesn't necessarily equal $250,000 per beneficiary, per owner. For example, let's say a mother owns a trust account with a $400,000 balance. If she names both her children as beneficiaries, you might assume that the entire account balance would be insured—$200,000 per child, per owner. However, if the mother makes one child the beneficiary of 75% of the trust and the second child a beneficiary of only 25%, the child entitled to $100,000 would be fully covered, but the child entitled to $300,000 would not be covered for the $50,000 exceeding the $250,000 limit.
  • In calculating the per-beneficiary insurance limit, the FDIC combines all of an owner's payable-on-death (POD) and living trust accounts at the same bank. So, for example, if a father names a child the sole beneficiary in a living trust account worth $230,000 and also names him as sole beneficiary of a POD account with a $40,000 balance, the $20,000 exceeding the $250,000 limit would be uninsured.

Self-Directed Retirement Accounts

This category includes all individual retirement accounts (IRAs), Roth IRAs, Section 457 plan accounts, self-directed defined contribution plan accounts (such as 401(k)s), and self-directed Keogh accounts owned by one person. The total balance in any one or a combination of these accounts at the same institution is insured up to $250,000.

This insurance applies only to the portion of your retirement account balance that is in bank deposits, such as CDs and money market accounts. The portion of your retirement account in mutual funds, bonds, and other investments remains uninsured, even if you purchased them through an FDIC-insured bank.

Monitoring Your Accounts to Ensure Coverage

To ensure that you don't allow funds to be uninsured, keep a close watch on your account balances. If you exceed the insurance limit for a particular ownership category at one bank, move the excess into an account at another bank (or into some form of investment).

To determine your deposit insurance coverage or ask any other specific deposit insurance questions, call 877-ASK-FDIC (877-275-3342).

If you have a lot of money in CDs, you might have another option for protecting yourself. The Certificate of Deposit Account Registry Service allows you to make deposits with one member bank, which then spreads your money among CDs at other banks in the network.

If Your Bank Fails

Federal law requires the FDIC to make account holders' money available "as soon as possible" after an insured institution fails. So, you could have access to your money as quickly as one day after your bank's closure. Your account might remain at your current bank, which will have been taken over by the FDIC, or it might be transferred to another FDIC-insured institution.

If your bank has failed, visit the FDIC's Failed Bank List online for important information, including the name of the acquiring bank, if there is one, and how your accounts are affected.

Account holders who have uninsured deposits could ultimately recover all or a portion of those funds as failed bank's assets are sold off, though this could take months or longer.

Learn more about FDIC insurance online at www.fdic.gov/deposit/deposits. If you have further questions, contact the FDIC directly toll-free at 877-ASK-FDIC (877-275-3342/TDD: 800-925-4618).

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