The Federal Deposit Insurance Corporation was started during The Great Depression to prevent runs on banks and to provide for an orderly transition when banks fail. Before then, you had best pick your banks carefully, because if they went bust, you were just screwed. Now, if the bank fails, the government will cover you up to $250K per account type. The National Credit Union Administration provides the same coverage for credit unions.
Make Sure the Bank is FDIC Insured
It's basically stupid for you to have a single dollar in a bank account that isn't insured by either the FDIC or the NCUA. But you need to make sure you don't have more than $250K in a single type of account at a single bank. Type of account refers to the person's name on the account, not on whether it is a checking, savings, money market, or CD type account. You are insured for $250K for accounts in your name and $250K for accounts in your spouse's name. Joint accounts are divided between the two owners and added together with their “sole” accounts. So if you just want joint accounts, they're insured up to $500K per institution. (Although if you get divorced or widowed, remember that your deposit insurance limits just decreased dramatically.) Opening different account types (checking/savings etc), re-ordering the names, using and/or specifications, or using different social security numbers doesn't affect these limits. It's $250K, per person, per bank.
Retirement accounts at a bank, however, ARE a “separate category” according to the FDIC, and are eligible for another $250K in insurance. This could be useful if you want to hold CDs in the retirement account, but most of us aren't going to put a big chunk of retirement money into plain old cash at the bank and mutual funds, stocks, and bonds aren't covered by the FDIC, even if held in a bank's IRA account.
Revocable trusts, irrevocable trusts, and corporation/partnership accounts are also all separate categories, eligible for another $250K per person per category per bank.
It would be a nice problem to have to have to worry about these limits. That's a long way off for me, but if it isn't for you, no sense in not taking advantage of your “free” insurance. You can learn more at the FDIC website.
don’t forget there’s SIPC too!
That’d make another great post. Thanks for the reminder.
So there is really no limit to how many banks you can use and still get FDIC protection?
Not that I know of. It’s per bank.
any updated thoughts on this? I think there are alot of readers like me who are in that nice position of having in excess of these limits, and it sure would be a pain to split a few M in 1 brokerage, among like 16 institutions, just to have FDIC coverage.
Has something changed that it needs an update?
Remember that FDIC insurance doesn’t apply to brokerage accounts, only bank accounts.
Hi, wondering if you have updated thoughts regarding FDIC insured accounts now that you are a millionaire. Strategically, would you waterfall into one account at a time? In other words, if you fill up $250K in TD, then open up another account in Etrade up to $250K, then open up in another one in robinhood, and so on and so on? Or you open up trusts and put it in that name? Thanks.
You know brokerage accounts including MMFs are not FDIC insured, right? But you can do that at banks. You will find that you can have more than one account at a bank if you are married too. For example, a joint account has a $500K limit and each individual can have a $250K limit for $1M total at a single bank. Each trust adds another $250K. At that point, you might start wondering if you have too much in cash though.
Here’s a way to increase the insurance for FDIC. Open it up in your name and add three different beneficiaries. I was told by the bank that this would increase the insurance coverage up to $1 million. That is, each beneficiary you include, that is, payable on death, regardless of you surviving get an additional 250,000 coverage.
Interesting. With cash, of course, you can just put their name on the account and definitely get the additional coverage. But whether just as a POD beneficiary does it I’m honestly not sure.
PS If you post my comment about the beneficiary increase with FDIC insurance, can you just take away my real last name and put K instead? Thanks
It just says K so not sure what you’re referring to.