Deposit accounts are one of the most common tools used in day-to-day personal banking. There are two government agencies responsible for protecting the money in these accounts. The Federal Deposit Insurance Corp. insures deposits at most banks, while the National Credit Union Administration insures deposits at most credit unions. There’s a cap on the amount your deposits can be insured for, however — what if you want to insure them for more? Read on to find out how.
[Read: Best Checking Accounts.]
What Is the FDIC?
The FDIC is an independent government agency headquartered in Washington, D.C. that oversees the banking industry. Its primary duty is to insure deposits at U.S. banks. The FDIC also supervises and examines banks and savings associations all over the country to confirm they’re reliably operating, and ensures that banks comply with consumer protection laws.
How Much Does the FDIC Insure?
Deposit insurance is one of the benefits of having an account at an FDIC-insured bank, because it’s how the FDIC protects your money in the unlikely event of a bank failure. Deposits are insured up to $250,000 per depositor, per ownership category, per institution.
FDIC insurance covers the following:
— Checking accounts
— Savings accounts
— Money market accounts
— Certificates of deposit
— Cashier’s checks
— Money orders
The FDIC doesn’t cover these categories:
— Annuities
— Stocks, bonds or mutual funds investments
— Losses from investments, even if purchased from insured bank
— Life insurance policies
— Safe deposit box contents housed at a bank
— Municipal securities
[Read: Best Savings Accounts.]
How Does FDIC Coverage Work?
These examples illustrate how deposits are insured by FDIC coverage:
— You and your spouse have individual savings accounts at the same bank, each with $200,000 deposited. You’re fully insured because your accounts have different depositors — you and your spouse.
— You have two checking accounts at two different banks, each with $200,000 deposited. You’re fully insured because your accounts are at two different institutions.
— You have a personal account and a business account at the same bank, each with $200,000 deposited. You’re fully insured because your accounts are in different ownership categories — personal and business.
— You have two individual personal checking accounts at the same bank, each with $200,000 deposited. You’re insured only up to $250,000 because both of your accounts have the same depositor, ownership category and institution.
When it comes to living trusts, however, FDIC coverage is “calculated differently than most people expect,” says Stephen Reh, a financial advisor at Reh Wealth Advisors in Raleigh, North Carolina. The $250,000 limit applies “per beneficiary, per grantor.”
For example, if two spouses have two children and each parent has set up a trust for each child, coverage would extend to $1 million. The math is: $250,000 from the father for Child 1 and another $250,000 for Child 2, then $250,000 from the mother for Child 1 and another $250,000 for Child 2.
If you’re not sure whether your accounts are fully insured, check out the FDIC Electronic Deposit Insurance Estimator.
[Read: Best CD Rates.]
How Can You Insure More Than $250,000?
The $250,000 limit may sound high, but there are some common situations when you may have more cash in a bank, such as if:
— You sold your home
— You’re saving to buy a home
— You received an inheritance
— You own a business
— You sold a business
— You’re repositioning investments before retirement
— You’re retired
— You have trust accounts
Here are four ways you may be able to insure more than $250,000 in deposits:
— Open accounts at more than one institution. This strategy works as long as the two institutions are distinct. To confirm that, check their FDIC certificate numbers, which are unique to each bank.
— Open accounts in different ownership categories. Examples of categories include single, joint, retirement account, trust, business, employee benefit plan and government. Accounts may need to meet certain requirements to be covered.
— Use a network. Networks are designed to help depositors insure large sums. IntraFi Network Deposits divides big deposits into demand deposit accounts, money market deposit accounts and certificates of deposit at FDIC-insured banks. A Max checking account allocates deposits among FDIC-insured banks to try to maximize interest earnings. Services like these may involve fees.
— Open a brokerage deposit account. Most large brokerage companies offer FDIC-insured bank accounts.
“An FDIC brokerage cash account will keep your money federally insured, and since it’s linked with a brokerage house, you can easily execute trades into the market,” says Elliot J. Pepper, co-founder and certified financial planner at Northbrook Financial in Baltimore.
The Securities Investor Protection Corp. insures securities held in investment accounts up to $500,000 with a $250,000 limit for cash. This insurance doesn’t protect you from investment losses, but it steps in if your brokerage company fails.
“Most brokerage accounts will often offer additional coverage,” says Chris Struckhoff, senior financial planner at Creative Planning in Irvine, California.
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How Do You Insure Funds More Than the FDIC Limit? originally appeared on usnews.com
Update 10/11/24: This story was previously published at an earlier date and has been updated with new information.
