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Money > Banking & Loans
By
Martha C. White
Bank failures—like the recent
collapse of Silicon Valley Bank—can be scary, raising the prospect of losing your savings overnight. Fortunately, thanks to the Federal Deposit Insurance Corp., you most likely don’t have to worry.
This entity, established by Congress in 1933 after a series of bank runs helped spark the Great Depression, is designed to protect the assets of middle-class depositors. The idea is that, by assuring depositors their money is safe, the government can prevent the kind of panic-driven race for withdrawals that can otherwise sink even healthy banks.
While the FDIC officially covers only up to $250,000 in deposits, fortunately there are easy (and perfectly legitimate) ways to multiply that amount, so all of your savings are FDIC-protected.
The upshot: If the news about Silicon Valley Bank—or Signature Bank, which also recently ran into trouble—has you wondering whether you should take money from your own bank, relax. The answer is almost certainly, “no.”
Read on to find out how the FDIC works and exactly what is covered.
The Federal Deposit Insurance Corp. is a federal regulator funded by the deposit insurance premiums paid by member banks. The FDIC monitors banks’ financial health and makes sure they comply with consumer protection and lending laws. But its most well-publicized function is right in the name—providing a backstop for depositors in case of an emergency bank failure.
The deposit insurance it offers kicks in to make customers whole (up to stipulated limits, typically $250,000) in the unlikely event of a bank failure. FDIC insurance coverage is automatic, as long as your money is held in an account at an FDIC-member bank—you don’t need to apply for it.
If you have a checking, savings or other deposit account, the FDIC insurance limit is $250,000. For most bank customers, that’s more than adequate—but there are a few caveats around FDIC coverage you should keep i mind.
The deposit coverage limit is per bank, per depositor and per “ownership category.” Ownership category classes include singly-held and joint accounts, different types of trust accounts, corporation and government accounts, and some benefit and retirement accounts.
All this means it’s possible for a single person to receive coverage well above $250,000. If you have $250,000 in two separate savings accounts at two different banks, the entire $500,000 should be fully covered. However, if you have $500,000 split between a checking account and a savings account at one bank, chances are you will only be covered up to $250,000.
One way to boost your coverage limits without dealing with multiple banks: If you have a savings account in your own name and joint account you share with your spouse, your family will be covered up $750,000. That’s because the FDIC regards joint accounts as being in a different “ownership category” from single accounts and also insures them at up to $250,000 per depositor. You can use the FDIC’s Electronic Deposit Insurance Estimator tool online to plug in your specific circumstances and find out how much coverage you would have.
One other tip to make sure you are covered: Look beyond your bank’s brand name, especially if you have a high-yield savings account or CD.
Many digital banks are actually brands of traditional banks. For instance, BrioDirect is the digital brand of Webster Bank, and UFB Direct is a brand of Axos Bank. While these digital banks carry FDIC insurance, if you have deposits in account at both the online brand and the bricks-and-mortar parent, they may be subject to the same $250,000 FDIC coverage limit.
If you are unsure, you can check the name of FDIC-member bank for your account using the FDIC’s BankFind tool.
You also should conduct due diligence around FDIC insurance of your deposits if you choose to keep money with a nonbank fintech company. Although many of these neobanks partner with FDIC-member banks to offer deposit coverage, the FDIC tells savers to be cautious. Make sure you understand the terms under which your money is insured, including how, when and where your money is deposited with the firm’s FDIC-member bank partner.
FDIC insurance covers what we tend to think of as everyday bank accounts—specifically, checking and savings accounts, both interest-bearing and non-interest-bearing. FDIC insurance also covers other types of deposit products including money market deposit accounts and CDs.
Deposit insurance does not cover stocks or bonds (including municipal bonds), mutual funds, life insurance, annuities or crypto assets, although your interests may be covered by a different kind of insurance. FDIC insurance also does not cover U.S. Treasurys, although the agency notes on its website that these instruments are backed by the U.S. government, which is why they’re considered safe-haven investments the world over.
Here is a rundown:
FDIC coverage includes money market deposit accounts, although it does not cover money market mutual funds, which you buy through a broker.
Certificates of deposit are FDIC insured, subject to the overall coverage limits. The exception to this rule is brokered CDs: These products are purchased through brokers, which places them outside the purview of FDIC coverage.
FDIC insurance does not cover deposits held at credit unions, but there is a parallel agency, the National Credit Union Administration, that offers equivalent deposit insurance—with the same $250,000 limit as the FDIC insured amount—on accounts and certificates held by credit union members.
If you’re comparing NCUA versus. FDIC, you really won’t find any difference from a customer perspective. Like FDIC insurance, you get automatic NCUA insurance coverage if you bank with a member institution.
Investment products such as stocks, bonds (including municipal bonds) and mutual funds are not covered by FDIC insurance. If you have a brokerage account and it loses value, that’s a risk you have to be willing to expect as an investor.
The Securities Investor Protection Corporation, an independent organization for broker-dealers, offers coverage for lost cash and securities if you have a brokerage account at a SIPC-member company that fails. The coverage limit is up to $500,000 per customer, per institution (that limit remains in place even if you have multiple accounts with the same brokerage), including $250,000 maximum coverage for cash.
Since the FDIC doesn’t insure any nonbank assets, cryptocurrency is not covered by the agency’s deposit insurance. It also doesn’t protect consumers from losses they may incur as the result of fraud or theft.
The cryptocurrency market operates in a regulatory gray space, and consumers don’t get the kind of protection they would if they held cash in a bank or credit union. Cryptocurrency exchanges, brokers, custodians and wallet providers all fall outside the umbrella of FDIC supervision and coverage.
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