
FDIC (Federal Deposit Insurance Corporation) insurance might not be the sexiest personal finance topic, but it’s an important one.
Many people know that banks have federal insurance, but they may not know the details about what’s covered and what isn’t.
FDIC Insurance Has You Covered
The Federal Deposit Insurance Corporation (FDIC) was founded during the Great Depression to keep people from making runs on bank deposits.
FDIC insurance protects depositors against the loss of their funds if a bank fails.
FDIC insurance is backed by the full faith and credit of the United States government, and since it was established, no depositor has ever lost any FDIC-insured funds.
FDIC insurance covers funds in deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit (CDs).
FDIC insurance does not cover other financial products and services that insured banks may offer, such as stocks, bonds, mutual fund shares, life insurance policies, annuities or municipal securities.
FDIC coverage is automatic. Coverage is automatic up to the limits and the banks pay the insurance premiums, not the customers.
New FDIC Insurance Limits
The new FDIC limits took effect October 3rd, 2008 and last through December 31st, 2009, unless they are extended by another bill.
The new limit is $250,000 and covers single accounts, IRAs and other retirement accounts, and trust accounts.
Joint accounts are covered $250,000 per co-owner. For example, my spouse and I could theoretically have $1 million in FDIC insured funds in one bank – each with an individual account and a joint account.
To guarantee your entire account is covered, just keep your deposits under the limit. If you need additional coverage, open another account with the same bank, or another bank.
Unfortunately, bank failures continue to occur—over 150 institutions have closed their doors since the beginning of 2010.
The FDIC, or Federal Deposit Insurance Corporation, can be a real lifesaver if your bank or thrift institution goes under.
5 Misconceptions With The FDIC
But don’t wait until it’s too late–make sure you never go bust along with your bank by falling prey to these five common misconceptions about FDIC insurance:
Misconception #1: Every Financial Institution Has FDIC Insurance
Many, but not all, banks have FDIC insurance. Use the FDIC Bank Find lookup tool to make sure your money is in a safe institution.
You won’t find credit unions in the FDIC database—but don’t worry, they get their own version of federal insurance from the National Credit Union Administration (NCUA), which is virtually identical to FDIC insurance.
Go to ncua.gov to learn more about credit unions and to find institutions that are NCUA-insured.
Misconception #2: All Bank Assets Are Covered by FDIC Insurance
FDIC insurance covers deposits only, which is money you’ve put into a checking, savings, money market, certificate of deposit (CD), or retirement account.
It doesn’t cover investment products, like stocks, bonds, mutual funds, money market mutual funds, annuities, or life insurance, even if they were purchased from an FDIC-insured institution.
Additionally, stolen funds and assets stored in a bank safe deposit box are never covered by the FDIC.
Misconception #3: FDIC Insurance Applies Per Account
When you need to figure out how much of your money is covered by FDIC insurance, it can get a little tricky because it isn’t figured per account—it’s figured per depositor per ownership category up to $250,000 per institution.
See what I mean? It’s easier to understand when you boil it down to two simple questions:
- What are your financial institutions? This is the first question to ask because you get full coverage at each unique FDIC-insured institution. So having your money spread out at different banks is a way to get more coverage if you need it. But remember that having money at different branches of the same bank doesn’t qualify for additional FDIC coverage.
- How do you own your accounts? Next, take a look at your account ownership at each of your FDIC-insured institutions. Individuals and families typically have a combination of single accounts, joint accounts, and retirement accounts. A single account is held in your name only, a joint account is co-owned with one or more people, and a retirement account is a special tax-favored account that can be owned by one person only. For each of your ownership types, you get up to $250,000 in coverage. That means you could have $250,000 in a savings account in your name only (a single account) and $250,000 in an IRA (a retirement account) at the same bank and be fully insured. To double check your coverage limits, use the FDIC’s Electronic Deposit Insurance Estimator (EDIE).
Misconception #4: FDIC Insurance Is For Interest-Bearing Accounts Only
Even if your checking account doesn’t pay you a penny of interest, it’s still covered by the FDIC.
Non-interest-bearing accounts receive special treatment from December 31, 2010, through December 31, 2012, because they get unlimited coverage, regardless of your account balance.
This temporary limitless coverage applies to personal and business accounts and is separate from and in addition to the regular FDIC coverage of $250,000.
Misconception #5: There Are No Alternatives to FDIC Insurance
If you’re lucky enough to have so much cash in the bank that you’re above the allowable FDIC insurance limits for your personal or business accounts, speak with a bank representative about your situation.
Certain banks offer insurance from the Certificate of Deposit Account Registry Service (CDARS) to cover high deposit customers so they don’t have to move money to other institutions.
CDARS offers full FDIC protection on deposits of up to $50 million.
Donny Gamble says
This is a very important post that we all need to read. Don’t take your money out of the bank or your retirement account. If you do, you will be losing out on possible the greatest sale of the century. Everything so cheap right now, that if you invest more money now, your investment will probably sky rocket within the next 30 years. Stocks are at the level where people feel that every company in the world is going to file for bankruptcy. Never going to happen.
Dividend Growth Investor says
I totally agree that as long as you have under $250K in an FDIC bank you shouldn’t take the money out. Why?
Because the risk of you losing all money outside the bank is much larger than the risk of losing the money if the bank fails. What if someone followed you on your way home.:-(
And yes, everything is cheap right now.. But today the market has started to correct things..
LiveWellSimply says
When I found out about the $16 billion that people yanked from WAMU causing it to go down in flames, I was amazed and somewhat amused. Why go through all the trouble of transferring your money to a new bank which could just as easily disappear and which is also FDIC insured? These are crazy times alright.
Kristen says
Didn’t these people watch “It’s a Wonderful Life?” But in all seriousness, I’m glad you addressed this topic. Panicking is the worst thing we can do.
There is a similar thing happening in England. People are withdrawing their money and putting them into Irish banks because Ireland has promised to insure a higher amount of money than the British banks. Our problems (with housing too) are being mirrored over there from what I’ve heard on the BBC.
Ryan says
LWS and Kristen: You both bring up good points. There is no need for people to make a run on banks – the money is covered. But doing that could have bad effects and bring down banks. Thankfully, we haven’t seen too much of this – mostly just isolated cases.
fathersez says
Our bank deposits used to be insured to RM60,000 only (about 17,000 USD or so). Recently the Malaysian Government announced that they would g’tee 100%. (so has the Singaporean Gov’t).
I think this is a reaction to maintain financial stability after seeing some serious withdrawals happening.
After all even the biggest bank will fall if enough withdrawals happen.
John says
in the great depression people were told to leave their money in the bank. many didn’t and many did. the ones that left it in lost it all!
Ryan says
John: The FDIC was not around at the time, so if banks folded, the money went with it. Now the money in FDIC member banks is guaranteed up to $250,000 per account. Of course, you could still lose purchasing power from inflation or the US currency could lose it’s value, but that is another story. 😉
krantcents says
Thanks for the post! Most people take FDIC for granted.
Laura Adams says
@krantcents You’re welcome and I agree. I think many people don’t fully appreciate the protection and security it gives us!