On October 3, 2008, Congress passed a bill that temporarily increases the FDIC insurance limits. An updated post can be seen here.
With the recent collapse of IndyMac, a bank based in California, I think now is a good time to explain how FDIC insurance works and how much you are covered for.
The FDIC (Federal Deposit Insurance Corporation) insures deposits for most banks and savings institutions. In the event that you bank should fail, the FDIC will step in and insure your deposits up to a set limit. The limit for deposits is still set at $100,000 per insured per institution. So if you have a money market account at ABC bank, that account will be covered for $100,000. In other words, if ABC bank goes belly up, you only $100,000 of your deposits will be insured. If you hold several accounts in only your name at ABC bank, you will still only get $100,000 in coverage. For example, if you have 3 savings accounts with $500,000 each in them (a total of $1.5 million) you only have FDIC insurance of $100,000. If you have accounts that are titled with someone else, that account gets additional FDIC coverage. For example, if you have $100,000 in a single account (only in your name) and $100,000 in a joint account with your spouse, you will have $100,000 in FDIC insurance for each account. Here are some more examples that may be easier to understand.
$25,000 in a checking account owned by him
$40,000 in a savings account owned by him
$75,000 in a money market account owned by him
Total of $140,000 at this particular bank.
Even though he has three separate accounts, he still only has $100,000 worth of FDIC insurance and $40,000 is uninsured.
$40,000 in a checking account owned by him
$50,000 in a checking account owned by him and his wife
$30,000 in a money market account owned by him
$45,000 in a savings account owned by him and his wife
Total of $165,000 at this bank.
Since the accounts are titled differently than the 1st example, Sergio will get some additional coverage. His single accounts will get coverage of $100,000 and his joint accounts will get $100,000 in coverage. Since the single accounts add up to $70,000 they are fully covered. His joint accounts total up to $95,000 and the are fully covered as well.
As I mentioned earlier, the FDIC insurance coverage is also on a per institution basis. What I mean by this is that you can have $100,000 in a checking account at 400 differed banks (for a total of $40 million) and it will all be covered by FDIC insurance. I know, it is an extreme example, but wouldn’t we all like to have that much money?!?
I imagine there are some of you out there that are say “I am in a credit union, does that mean the FDIC won’t cover me”?
The short answer to that is yes, but you do still have coverage by another organization.
Credit unions (which I am a member on one) provide the same type of insurance coverage through the NCUA (National Credit Union Administration). This coverage has the same limits and limitations as the FDIC. Both the FDIC and the NCUA are backed by the Federal Government.
I did not write this post to scare anyone! I just wanted you to be aware of the limitations of the FDIC insurance and to position yourself correctly in case something did happen to your bank. The IndyMac failure was completely unexpected as it was not on the FDIC’s watch list.