Make the Most of Your FDIC Insurance Limits

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.

1st Example

Sergio

$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.

2nd Example

Sergio

$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.

12 thoughts on “Make the Most of Your FDIC Insurance Limits

  1. Econ

    With all the failures lately, I had been wondering to what extent the FDIC covers bank deposits. Thanks for the explanation!

  2. Melissa P.

    is your email on this blog? i subscribed but wasn’t able to find your address to tell you…

  3. Shari

    Great explaination! I would also advise that any who has $100,000 would diversify and open accounts at more than one bank. Having $50,000 at two different banks is safer still.

  4. Philip

    I know that IRA are safe up to $250,000 but what if I have money in a 401k over that amount with vanguard or other location. Is that FDIC insured against bank failure or what is happening there.

    Go Red Raiders! (Always nice to see someone from Lubbock online)

  5. Adam

    Philip, great comment! 401(k)s and other retirement accounts are very different than typical bank accounts like savings and CDs. The banks that provide 401(k)s are typically just the trustee for the account, meaning they cannot loan out that money like they do for typical bank accounts. So in other words, they are not covered by insurance. This is because you control what you do with that money. You can put it in stocks, bonds, etc. These may go down to extent that you no longer have any money, but it is not the banks fault that it happened.

    In terms of the Red Raiders, I think it’s going to be a good football season!

  6. Philip

    “IRA funds are insured separately from other types of accounts, up to a $250,000 limit” Taken directly from the FDIC site at http://www.fdic.gov/bank/individual/failed/IndyMac.html

    Why would they create this distinction if the IRA funds are invested in stocks and other non-bank controlled funds?

    Also, you mention in the article that Sergio has funds in Money Market accounts at the banks. I am not certain how money markent accounts work, are they in cash or are they funds that are invested? If invested why would they count towards the FDIC insured amount.

    (I am sad that I will be missing the home football games this year. Moved to far away!)

  7. traviswright

    I work at a bank and have never answered so many FDIC questions in my life. I may just start directing them to your blog for answsers…lol…

  8. lisah

    Thank you for such a clear and simple way to understand how the insurance works. Great blog!

  9. Adam

    @Philip – The $250,000 IRA limit is only good on the funds that are invested in the banks products. Many banks offer IRAs that can only be invested in the banks CDs or their money market accounts. If you use the banks brokerage to purchase stocks or mutual funds they will no longer be covered under the FDIC insurance. In terms of the money market accounts, if you have money in the banks money market account, you will get the FDIC insurance. If you buy a money market mutual fund (MMFA) with the banks brokerage, that will not be covered under the FDIC. I hope this answers all of your questions. If you would rather e-mail me more questions, feel free!

  10. Clair Schwan of Frugal Living Freedom

    This is good and current advice. I had a couple hundred thousand dollars that I wanted to hold in CDs, so I put them in my name and the name of my sister and mother. That covered them adequately between the three of us.

    The potential danger of course is any owner of a CD can withdraw the money at any time for any reason because they are one of the owners. So, if you have multiple owners assigned to your assets, make certain you are very comfortable with those people.

Comments are closed.