FDIC Limits Explained

If nothing else, the recent failures of Silicon Valley Bank and First Republic Bank highlighted the importance of Federal Deposit Insurance Corporation (FDIC) insurance. FDIC insurance protects deposits at member banks in the highly unlikely chance that a bank goes under. There are rules and limitations to consider – this is banking, after all – so here’s what you, the nonprofessional, should know about FDIC insurance.

What is FDIC insurance?

FDIC insurance was born out of the Banking Act of 1933 to restore faith in the banking system after the Great Depression. Since its establishment, no depositor has lost a single penny of INSURED FUNDS as a result of a bank failure.

FDIC insurance protects money in member bank accounts up to $250,000 per depositor, per insured bank, and per ownership category should a bank fail. This means if you have both an individual and a joint bank account at the same bank, you may be eligible for coverage above $250,000.

FDIC insurance covers:

Checking accounts
Savings accounts
Money market deposit accounts
Certificates of deposit (CDs)

It also covers certain retirement plans, including IRAs and self-directed 401ks and profit-sharing plans.

FDIC insurance does not cover investments such as:

Stocks
Bonds
Mutual funds
Life insurance
Annuities
Cryptocurrency

FDIC protection doesn’t cover investments, but you may have separate Securities Investor Protection Corporation (SIPC) coverage for cash and securities held at brokerage firms, which we’ll cover later.

FDIC coverage by ownership category

Because FDIC coverage limits vary by ownership category, here’s a breakdown of individual, joint, and trust account rules.

Individual accounts

For deposit accounts you own individually, FDIC insurance covers up to $250,000 per depositor, per bank, and per ownership category.

Let’s say you have the following deposit accounts at an FDIC-insured bank:

Account type	Amount
CD	$200,000
Checking	$10,000
Savings	$20,000
Money market deposit account	$40,000

In this example, the total you have at one bank is $270,000, spread among different account types. In this case, $20,000 is unprotected because your total deposits exceed the FDIC individual account limit of $250,000.

Joint accounts

In the case of joint accounts, the FDIC $250,000 coverage limit applies to each co-owner individually, so if you have a joint account with your spouse, the FDIC will protect up to $500,000. Each co-owner must have equal withdrawal rights to the account to be eligible for this coverage.

Trust accounts

FDIC insurance varies depending on the type of trust.

Revocable trusts: For revocable trusts with five or fewer beneficiaries, deposits are typically insured up to $250,000 per beneficiary.

Irrevocable trusts: These are typically insured for a maximum of $250,000, regardless of how many beneficiaries are named.

How to maximize FDIC insurance

The simplest way to maximize FDIC coverage is to spread your money across multiple FDIC member banks. As long as your deposits don’t exceed $250,000 at any one bank, you should be protected.

Another way to expand coverage is to take advantage of FDIC deposit sweep programs at participating firms. For example, if you have more than $245,000 of uninvested cash in a participating Fidelity account, your cash will automatically be spread across multiple banks to maximize your FDIC insurance eligibility.

Search for FDIC-insured banks through FDIC’s BankFind Suite.

FDIC vs. SIPC coverage

Just as FDIC coverage protects bank deposit accounts, SIPC coverage protects cash and securities held by brokerage firms should a member firm fail. The Securities Investor Protection Corporation is a nonprofit entity and operates very differently from the FDIC, but its purpose is the same: to keep your money safe. SIPC insurance does not, of course, cover losses resulting from market fluctuations or investment performance.

The key differences:

FDIC protects up to $250,000 in deposits; SIPC protects up to $500,000 in cash and securities, such as stocks and bonds.
FDIC covers deposit accounts (checking, savings, money market deposit accounts, CDs); SIPC covers cash and securities in brokerage accounts.

Reserve requirements

A third but entirely different sort of fiscal safeguard is known as reserve requirements. This is the amount of funds U.S. banks are required to keep on hand to meet their obligations to depositors. Although the Federal Reserve eliminated reserve requirements for all depository institutions as of March 26th, 2020, they are still in place for investment firms. The reserve requirements for investment firms vary based on the size and activities of the firm. Rule 15c3-3 is particularly important, as it requires firms to ensure customers can withdraw assets at any time.

Final thoughts

While bank failure can certainly be unsettling, understanding the safeguards in place – including FDIC insurance and reserve requirements – should help put your mind at ease. That said, it only makes good sense to regularly review your accounts to ensure you’re maximizing the insurance coverage available to you.

Black Walnut Wealth Management is here to help. Schedule a 15-minute introductory meeting by calling us at 231.421.7711 or visit our Contact Us page to schedule online.

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