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After hearing about recent and unexpected bank closures by the FDIC via the news and social media, you may be asking yourself what the FDIC is and if the money you keep in your bank is safe. While everyone’s situation is unique when it comes to where you bank and the types of accounts you hold, this article explains the important things you should understand about FDIC insurance including what it is, what the coverage limits are, and how they could apply to you.
What is the FDIC?
The FDIC (Federal Deposit Insurance Corporation) is an independent agency of the United States government. It protects depositors (bank customers) against the loss of their insured deposits (balances in savings accounts, checking accounts, etc.) in the unlikely event that an FDIC-insured bank fails. It was established in 1933 after the Great Depression when thousands of banks went out of business. FDIC insurance is backed by the full faith and credit of the United States government. Since the FDIC’s inception, no depositor has lost a single penny of their FDIC-insured balances.
What does it mean for a bank to be FDIC-insured?
A bank becomes FDIC-insured (or Member FDIC) by applying for FDIC insurance coverage and paying premiums, much like an individual would pay for health or auto insurance. These premiums are then pooled and used to protect the depositors of insured banks should a bank failure occur.
How do I know if my bank is FDIC-insured?
It’s easy to determine if your bank is FDIC-insured. Simply look for a “Member FDIC” sign at any bank location, on your bank’s website, or by asking any representative of your bank. Another way you can determine if your bank is FDIC-insured is by using the FDIC’s BankFind tool.
Do I need to apply for FDIC insurance?
As a bank customer, it is not necessary to apply for FDIC insurance coverage. Coverage is automatic whenever you open an account with an FDIC-insured bank. If FDIC insurance coverage is important to you, simply make sure that a bank is FDIC-insured prior to opening an account.
How much does FDIC insurance cover?
Customers of FDIC-insured banks are automatically insured up to $250,000 per depositor, per FDIC-insured bank, per ownership category. The $250,000 coverage limit includes the principal balance plus any interest that was accrued through the date that the bank went out of business.
Is FNBO an FDIC-insured bank?
Yes, FNBO is an FDIC-insured bank which means each depositor of FNBO is insured up to $250,000 per ownership category.
What type of accounts are FDIC-insured?
In general, deposit accounts are insured by the FDIC as well as some payment instruments, including:
- Checking accounts
- Savings accounts
- Certificates of Deposit (CDs)
- Money Market Deposit Accounts (MMDAs)
- Cashier’s checks, money orders, and negotiable order of withdraw accounts
- Some prepaid cards
What types of accounts are NOT FDIC-insured?
Accounts that are not protected by the FDIC include investment products such as:
- Mutual funds
- Life insurance policies
- Municipal securities
- Stocks and bonds
- The contents of safe deposit boxes
What are the FDIC ownership categories and how is coverage determined?
Customers of FDIC-insured banks are insured up to $250,000 per depositor, per FDIC-insured bank, per ownership category. This means that depending on the different types of accounts you hold, and how many different FDIC-insured banks you bank with, you could be eligible for more than $250,000 in coverage. Here’s a breakdown of the different ownership categories and how FDIC insurance coverage is calculated for each one.
- Single Accounts
A single account is owned by one person without named beneficiaries. The balances of all single accounts owned by the same person at the same bank are added together and insured up to $250,000.
Example: Let’s assume that at Bank A you are the single owner of a checking account with a $5,000 balance, a savings account with a $45,000 balance, and a money market account with a $200,000 balance.
Then, at Bank B you have another money market account with a $260,000 balance. In this scenario, you would be insured for $250,000 at Bank A and at Bank B you would be insured for another $250,000 but uninsured for the remaining $10,000 in balances that are over the coverage limit.
Note: By designating beneficiaries to single and joint accounts (frequently referred to as a Payable on Death “POD” designation), you can increase the insured balance of an account. If your account balances exceed the single account limit, please refer to the FDIC guidelines for more information.
- Joint Accounts
A joint account is a deposit account owned by two or more people at the same bank with no beneficiaries. Each co-owner’s share of all joint accounts at the same bank are added together and insured up to $250,000.
Example: At Bank A, if you are an equal joint owner of Account 1 with a balance of $250,000 and an equal joint owner of Account 2 with a balance of $300,000, your total share between the two accounts adds up to $275,000 (300,000 + $250,000/2). This means that $250,000 of your share of joint accounts at Bank A would be FDIC-insured and $25,000 would be uninsured.
If you are also a joint owner on accounts with no beneficiaries at other FDIC-insured banks, your share of all joint accounts at each bank would be insured up to $250,000 per bank.
Note: By designating beneficiaries to single and joint accounts (frequently referred to as a Payable on Death “POD” designation), you can increase the insured balance of an account. If your account balances exceed the joint account limit, please refer to the FDIC guidelines for more information.
- Self-Directed Retirement Accounts
A self-directed retirement account is an individual retirement account or a self-directed defined contribution plan such as a 401k, an IRA, or profit-sharing plan. The balances of all self-directed retirement accounts for the same person at the same bank are added to together and insured up to $250,000.
Example: If you had $100,000 in an IRA account and $85,000 in a self-directed profit-sharing plan at the same bank, your total balances of $185,000 would be fully insured.
As with single accounts and joint accounts, any combined balances in self-directed retirement accounts that you hold with other FDIC-insured banks would be insured up to $250,000 per bank.
- Trust Accounts & Employee Benefit Accounts
Less commonly used personal accounts include trust accounts and employee benefit plans. The Insurance rules and limits for these types of accounts are more complex and take several factors into consideration. For more information on insurance rules for trusts and employee benefit plans, visit the FDIC’s Electronic Deposit Insurance Estimator.
Can I protect my money if I have more than $250,000 in my bank account?
Some financial institutions like FNBO offer additional services such as Insured Cash Sweeps (ICS) and Certificate of Deposit Account Registry Services (CDARS) to help protect customers with account balances exceeding $250,000.
ICS protects the funds by automatically breaking up deposit balances that surpass the standard FDIC coverage limits. Excess money is “swept” into FDIC-insured accounts at multiple financial institutions.
CDARS divide balances exceeding the FDIC insurance maximum of $250,000 into separate accounts with balances under the FDIC limit.
How Do Insured Cash Sweeps Work?
Institutions like FNBO that offer Insured Cash Sweeps (ICS) are members of the IntraFi network. When institutions place a deposit through ICS, that deposit is divided into amounts under the standard FDIC insurance maximum of $250,000. The amounts are then placed into deposit accounts at multiple FDIC-insured banks. As a result, customers can access FDIC coverage from many institutions while working directly with their primary bank. Learn more about FNBO’s ICS services.
How do Certificate of Deposit Account Registry Service Work?
Institutions like FNBO that offer Certificate of Deposit Account Registry Service (CDARS®) are members of the IntraFi network. When a member institution places your deposit through CDARS®, that deposit is divided into amounts under the standard FDIC insurance maximum of $250,000. The funds are then placed into deposit accounts at other network banks. As a result, customers can access FDIC coverage from many institutions while working directly with their primary bank. Customers may also receive one statement from their primary bank detailing all their CDARS placements. Learn more about FNBO’s CDARS services.
Why would the FDIC close a bank?
When you deposit money at a bank, that bank can use those funds to loan money to borrowers who then pay interest on their loans. This is ultimately how banks make money because the difference between the interest earned from loan borrowers and interest paid to depositors (plus other operating expenses) is considered the bank’s profit. When a circumstance arises in which a bank can no longer meet its obligations to depositors, the FDIC will close that bank and FDIC insurance kicks in.
What happens to my money when a bank fails?
In the unlikely event that your FDIC-insured bank would be closed by the FDIC, you will likely have access to your funds within a couple of business days. Generally, the FDIC will respond in one of two ways:
- The FDIC pays insurance to depositors up to the insurance limit by providing each depositor with a new account at another insured bank in an amount equal to the insured balance of their account at the failed bank, or
- By issuing a check to each depositor for the insured balance of their account at the failed bank.
In some cases such as when deposits exceed $250,000 and are linked to more complicated ownership situations, the FDIC may need additional time to determine the amount of deposit insurance coverage and may request supplemental information from the depositor to complete the insurance payout.
While bank failures do happen from time to time, they are a relatively rare and unlikely event. Should your FDIC-insured bank close, FDIC insurance is a reliable tool that helps ensure your money remains safe at your bank. For additional information and the latest updates regarding the FDIC and FDIC insurance, visit FDIC.gov and/or the FDIC.gov resources.
The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.