What Is FDIC Insurance?
Established in 1933 in response to widespread bank failures, the FDIC serves as an independent agency of the United States government. Its primary mission is to maintain stability and public confidence in the nation’s financial system. This is achieved through deposit insurance, which currently covers up to $250,000 per depositor, per insured bank, for each account ownership category.
For years, the FDIC insured bank accounts up to $100,000, but the banking crisis and Great Recession in 2008 changed everything. The banking crisis and consumer fears, changed it all and the FDIC insured banks up to $250,000 per account now. The move was aimed at increasing American confidence in the banking system. It appears to have worked. The higher FDIC insurance limits are no longer temporary.
FDIC Insured Banks $250,000 Coverage Limits
When first implemented, the increased insurance limits on FDIC savings accounts and other FDIC insured accounts at most banks, was set to expire at the end of 2009. However, to avoid a rush of customers restructuring (withdrawing) money from various FDIC insured banks, to get back under the $100,000 limit, President Obama signed a law passed by Congress that extends higher FDIC coverage. These higher limits are permanent now.
Does My Joint Account Have $500,000 FDIC Insurance?
The standard insurance amount is $250,000 per depositor, per insured bank. However, it’s crucial to recognize that this limit applies not per account, but per ownership category. This distinction allows depositors to potentially secure more than $250,000 in coverage at one insured bank if they hold accounts in different ownership categories.
FDIC Ownership Category Limits
- Single Accounts: These are accounts owned by one person and titled in that person’s name only. Each individual is insured up to $250,000 for all single accounts at each insured bank.
- Joint Accounts: Joint accounts are owned by two or more persons. Each co-owner’s share is insured up to $250,000, providing up to $500,000 in coverage for a two-person joint account at one insured bank.
- Certain Retirement Accounts (IRAs and Keoghs): These accounts are insured up to $250,000 per depositor, per insured bank. It’s important to note that this limit is separate from the $250,000 coverage for single and joint accounts.
- Revocable Trust Accounts: This category includes both informal (e.g., Payable on Death) and formal revocable trusts. The insurance coverage depends on the number of beneficiaries and the depositor’s equity in the account. Generally, each beneficiary is insured up to $250,000.
- Corporation/Partnership/Unincorporated Association Accounts: Accounts owned by businesses or organizations are insured up to $250,000 per corporation, partnership, or unincorporated association at each insured bank.
- Employee Benefit Plan Accounts: These are insured up to $250,000 for the non-contingent interest of each participant.
- Government Accounts: Accounts of the U.S. government, including its agencies and subdivisions, are insured up to $250,000 per official custodian at each insured bank.
FDIC Insurance Example
For instance, an individual with a single account and a joint account at the same bank could be insured for up to $500,000 ($250,000 for each account category). Adding an IRA to the mix could increase the total coverage to $750,000 at one bank.
FDIC Insurnace and IRAs
However, the law does NOT include most retirement accounts including IRAs. So, those IRA CDs, or IRA Certificates of Deposit are NOT insured to $250,000 like your regular bank savings accounts or checking accounts.
To get higher government insurance amounts on retirement accounts, move them to an investment account, or brokerage account. Even a discount online brokerage account is good.
While investment accounts with brokers are not FDIC insured, they are insured by a similar quasi-governmental entity called SPIC. (What is SPIC? – SPIC Defined) Unlike the FDIC, the SPIC already insured the amount of cash in an SPIC insured brokerage account up to $500,000 per customer. However, there is a catch. Cash, and cash equivalent, claims are limited to $100,000. So, to take advantage of the higher limits, you’ll need to have your IRA invested in something other than money market funds and CDs.
If you are worried about the safety of your IRA principal, but still want the higher SPIC insurance ceiling, look for low-risk investments to use in your brokerage account.
But, before you run out and make any changes, make sure that you understand FDIC Insurance Limit Coverage first. Grab this brochure from FDIC.gov if you have more questions.