Make the Most of Your New FDIC Insurance

I posted about the FDIC insurance limits several months ago and since then they have changed. I figured I would update the limits in this new post as many people have come across this article via Google search.

The FDIC (Federal Deposit Insurance Corporation) insures deposits for most banks and savings institutions. In the event that your bank should fail, the FDIC will step in and insure your deposits up to a set limit. The limit for deposits is  set at $250,000 per insured per institution. This limit was increased from $100,000 on October 3, 2008 in order to calm fears of failing banks. The $250,000 limit is set to expire on December 31, 2009 unless congress extends it permanently.  So, if you have a money market account at ABC bank, that account will be covered for $250,000. In other words, if ABC bank goes belly up, only $250,000 of your deposits will be insured. If you hold several accounts in only your name at ABC bank, you will still only get $250,000 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 $250,000. If you have accounts that are titled with someone else, that account gets additional FDIC coverage. For example, if you have $250,000 in a single account (only in your name) and $250,000 in a joint account with your spouse, you will have $250,000 in FDIC insurance for each account. Here are some more examples that may be easier to understand.

1st Example

Sergio

$100,000 in a checking account owned by him
$90,000 in a savings account owned by him
$175,000 in a money market account owned by him

Total of $365,000 at this particular bank.

Even though he has three separate accounts, he still only has $250,000 worth of FDIC insurance and $115,000 is uninsured.

2nd Example

Sergio and his wife Lisa

$140,000 in a checking account owned by Sergio
$150,000 in a checking account owned by both
$130,000 in a money market account owned bySergio
$145,000 in a savings account owned by both

Total of $565,000 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 $250,000 and his joint accounts will get $250,000 in coverage. Since the single accounts add up to $270,000 they are covered up to $250,000 with $20,000 not covered. His joint accounts total up to $295,000 and they are covered up to $250,000 in his name. However, his wife also gets $250,000 in FDIC insurance for these accounts. Combined, the joint accounts have $500,000 in coverage. That makes them fully covered.

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 $250,000 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 of) 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.

IRA Limits

Here is a quick overview of the IRA limits. I think these confuse people and should be clarified better by the FDIC. The FDIC covers your IRA for $250,000. This is as long as it is held at an FDIC institution AND is invested in FDIC insurance covered products. That means you must be invested in that banks CDs, money market accounts, or savings accounts. If you are invested in money market mutual funds, mutual funds, stocks, bonds, etc. you DO NOT receive the FDIC insurance. You invest in those products at your own risk.

For example, if you have an IRA at Fidelity or Vanguard and it is invested in their mutual funds. You do not receive the insurance on your account. If you have an IRA at Bank of America and it is invested in their CDs, you will receive coverage up to $250,000.

Once again, these limits will revert back to $100,000 per account after December 31, 2009. Please keep that in mind as you plan for the future.

When browsing FDIC banks you may be tempted by some of the best CD rates to go over the FDIC limits, but this is not a good move. No matter how good a bank deal is, you should always stay under the FDIC limits. This is a hard rule that should never be broken.

2 thoughts on “Make the Most of Your New FDIC Insurance

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