FDIC insurance helps protect account holders from losing eligible deposits if an FDIC-insured bank fails.
Key Takeaways
- FDIC insurance automatically protects eligible deposits at FDIC-insured banks, up to applicable limits.
- The standard limit is $250,000 per depositor, per insured bank, for each account ownership category.
- Checking accounts, savings accounts, money market deposit accounts, and CDs generally qualify for coverage.
- Investments and other non-deposit accounts, such as stocks, bonds, mutual funds, annuities, and crypto assets do not receive FDIC insurance.
FDIC insurance protects eligible deposits if an FDIC-insured bank fails, but coverage depends on the type of account, how it is owned, and how much is held at the bank. Understanding the coverage rules can help account holders determine which funds are protected and identify any balances that may exceed the standard insurance limits.
How FDIC Insurance Protects Your Deposits
The Federal Deposit Insurance Corporation (FDIC) is an independent federal agency that is fully backed by the U.S. government. It protects customers of FDIC-insured banks from bank failures by insuring qualifying deposits and any interest earned by the date of failure, up to the legal limit.
The FDIC maintains the Deposit Insurance Fund (DIF), which covers deposits and funds resolutions when a bank fails. The DIF is funded through insurance premiums paid by FDIC-insured banks and interest earned on funds invested in U.S. Treasury Notes.
Congress created the FDIC in 1933 after widespread bank failures occurred during the Great Depression.[1]
Which Deposit Accounts Are Covered?
FDIC insurance covers several common types of deposit accounts when they are held at insured banks. This includes:
- Checking accounts
- Savings accounts
- Money market deposit accounts (MMDAs)
- Certificates of deposit (CDs)
- Negotiable order of withdrawal (NOW) accounts
- Money orders, cashier’s checks, and some other official bank-issued items
Other financial products, such as stocks, bonds, and mutual funds, are not considered deposit accounts and are not FDIC insured, even if they are offered through an insured bank.
Coverage for eligible accounts is automatic. Account holders do not need to enroll, and there is no separate cost.
Understanding FDIC Coverage Limits
The maximum amount of coverage is $250,000 per depositor, insured bank, and ownership category. In other words, it’s based on:
- Who owns the money
- Where the money is deposited
- How the account is legally owned
Deposits at different branches of the same bank do not receive separate limits. However, deposits at separate insured banks receive separate coverage.
The FDIC recognizes several ownership categories. A depositor with accounts in more than one qualifying category at the same bank may receive separate coverage for each category, provided the accounts meet the FDIC’s requirements for that ownership type.
Individual Accounts
An individual account belongs to a single person. The FDIC combines the balances of that person’s qualifying individual accounts held at a single bank and applies the legal limit to that total. For example, if a single person has three qualifying individual accounts with balances of $100,000, $50,000, and $30,000, the total is $180,000. Since that amount is less than $250,000, the full amount would typically fall within the coverage limits.
Joint Accounts
Joint accounts typically have separate coverage rules. Each co-owner receives coverage up to the legal limit, and joint owners are considered to have equal shares, unless bank records show otherwise.
If two people equally own a qualifying joint account with a $500,000 balance, each account holder would generally have $250,000 in coverage under current FDIC rules. If they do not have any other joint accounts at that bank, the full balance will fall within the current standard coverage limits.[2]
Individual Retirement Accounts (IRAs)
Traditional and Roth IRA accounts fall into a separate FDIC ownership category and may be FDIC insured if they hold qualifying bank deposits. For example, an IRA holding a CD may qualify for FDIC insurance, while stocks, bonds, or mutual funds inside an IRA will not.
Eligible retirement deposits are insured up to $250,000 per owner at each insured bank. If the same owner holds multiple IRA accounts at a bank, the balances are combined to determine coverage.[3]
Trust Accounts
Trust accounts have separate FDIC rules, with coverage depending partly on the number of owners and eligible beneficiaries. As of April 1, 2024, FDIC rules state that each owner’s qualifying deposits generally receive up to $250,000 for each eligible beneficiary, up to five beneficiaries. This means an owner can receive a maximum of $1.25 million in coverage at each insured bank when there are five eligible beneficiaries.
All trust account balances at a single insured bank are combined to determine maximum coverage.
If a trust has multiple owners, these rules apply per owner, and equal ownership is assumed unless account records show otherwise. For example, a trust with two owners and five beneficiaries may receive a maximum of $2.5 million in FDIC coverage.[4]
Business, Government, and Employee Benefit Plan Accounts
The FDIC has separate rules for deposits owned by businesses, government entities, and employee benefit plans. Coverage depends on the account type and whether it meets requirements for that account ownership category. For example, a qualifying business account generally receives FDIC coverage separately from the organization’s owner’s personal deposits.[5]
How Multiple Accounts Affect Coverage
Opening several accounts at the same bank does not automatically increase FDIC coverage. The FDIC combines deposits that belong to the same depositor and fall under the same ownership category at the same bank.
For example, if one person has $175,000 in an individually owned savings account and $100,000 in an individually owned CD at the same bank, the two balances are generally combined to determine coverage. Since the total is $275,000 and the current limit is $250,000, the excess amount of $25,000 would not be insured.
What FDIC Insurance Covers (And What it Does Not)
FDIC insurance applies to deposit accounts. Other financial products sold by or through an insured bank do not automatically receive the same protection.[1]
| FDIC-Insured Deposit Products | Products Not Covered by FDIC Insurance |
|---|---|
| Checking accounts | Stocks |
| Savings accounts | Bonds |
| Money market deposit accounts | Mutual funds, including money market mutual funds |
| Certificates of deposit (CDs) | Annuities |
| Negotiable order of withdrawal (NOW) accounts | Life insurance policies |
| Money orders | Crypto assets |
| Cashier’s checks | Safe deposit boxes and their contents |
| Certain other qualifying deposits | U.S. Treasury bills, bonds, and notes |
| Municipal securities |
How to Verify FDIC Insurance on Your Accounts
To help protect your bank balances, it’s important to verify whether they’re covered by FDIC insurance. The following steps may help determine whether deposits fall within FDIC limits.
- Confirm the bank has FDIC insurance: Look for the FDIC sign at the bank’s location or its website, or use the FDIC’s BankFind Suite to search by bank name, location, web address, or FDIC certificate number.
- List all accounts by ownership category: Determine the total amount held at each bank, by owner and by ownership category (ex. individual, joint, retirement, or trust accounts).
- Use the EDIE calculator: The FDIC’s Electronic Deposit Insurance Estimator (EDIE) shows you exactly how insurance rules and limits apply to your specific deposit accounts, based on the information entered. It shows what’s insured and whether any portion exceeds coverage limits, and offers a printed record.
- Consult with an expert: For questions about complex situations, reach out to your banker or a representative at the FDIC for more information about deposit insurance rules and how they apply to your situation. Tax, legal, or estate planning questions may require advice from a qualified tax or legal professional.
What Happens if a Bank Fails: The FDIC Resolution Process
A bank “fails” when regulators determine that it can no longer meet its financial requirements and require it to close. The FDIC then steps in and uses one of several methods to resolve the failure and protect insured depositors.
- Purchase and assumption: A healthy bank takes over the failed bank’s insured deposits and may also purchase some or all of its assets. Generally, the depositors become customers of the acquiring bank and have immediate access to their insured funds. This is the FDIC’s preferred and most common resolution method.[5]
- Bridge bank: The FDIC may create a temporary bank to continue operations while it searches for a buyer or works toward another resolution.
- Direct reimbursement: If another bank does not take over the deposits, the FDIC may pay insured depositors directly, up to the applicable insurance limit.
Historically, the FDIC has provided insured funds within a few days after the bank closes. Typically, customers have access the next business day. More complex account ownership arrangements may take additional time to review.
FDIC Supervision May Help Prevent Bank Failures
In addition to providing deposit insurance, the FDIC also supervises certain banks. Identifying potential financial and operational risks and requiring corrective action may help prevent a bank failure.
Understanding Your FDIC Coverage
FDIC insurance gives depositors confidence that their eligible funds are protected up to the legal limit if an insured bank fails. Coverage depends on where funds are held and how accounts are owned.
Since account balances and ownership arrangements may change over time, periodically reviewing coverage may help determine whether deposits fall within the legal limits.
Frequently Asked Questions
What is FDIC Insurance?
FDIC insurance is federal deposit insurance provided by the Federal Deposit Insurance Corporation. It protects eligible deposits at FDIC-insured banks up to the legal limit if the bank fails.
How much does FDIC insurance cover?
The current standard coverage is $250,000 per depositor, per FDIC-insured bank, for each ownership category. Qualifying deposits in different ownership categories may receive separate coverage.
Which accounts are covered?
Generally, FDIC insurance covers checking accounts, savings accounts, money market deposit accounts, and CDs at insured banks.
Do I need to sign up for FDIC insurance?
No. FDIC insurance automatically applies when eligible funds are deposited in a qualifying deposit account at an FDIC-insured bank.
Are joint accounts FDIC insured separately?
Yes. Qualifying joint accounts fall into a separate ownership category. Each co-owner receives coverage up to the legal limit for their share of joint accounts held at the same bank.
Is FDIC insurance free?
Yes. Account holders do not pay a separate fee or premium for FDIC deposit insurance. Coverage automatically applies to eligible deposits at insured banks.
