As a follow up to Denis’ article about cash, and in light of the recent news involving bank failures, we thought it would be prudent to review how the Federal Deposit Insurance Corporation (FDIC) works and what it covers. The FDIC is an independent agency that was established by Congress with the goal of “maintaining stability and public confidence in the nation’s financial system.” While this is a great mission statement, most of us just want to know how much of our hard-earned cash the FDIC will insure. The FDIC insures $250,000 per depositor, per institution, per account ownership category. Let’s break this down to better understand how much is covered.
The term “per institution” simply means each separate bank. This means that an individual (single account owner above) could have up to $250,000 in CDs at ten separate banks and have complete FDIC coverage for the entire $2,500,000.
It is also important to understand what kinds of accounts at a banking institution are covered, and which are not. Covered accounts include checking, savings, money market deposit accounts, and CDs. Some examples of what are not covered are stocks, bonds, mutual funds (or losses from these assets), annuities, life insurance policies, safe deposit box contents, municipal securities, crypto assets, and US treasuries. Although US treasuries are not protected by FDIC, they are backed by the full faith and credit of the government. Also, please note that money market funds, such as those held at Schwab are similar to mutual funds for the purpose of this discussion, so are not insured by FDIC. However, just like other securities, the safety of money market funds is based on the underlying securities in the fund. These funds are not assets of the financial firm and are thus not at risk if the financial firm fails. Nonetheless, we are always watching closely and will make any recommendations necessary to ensure the safety of your cash and money market assets.
Now, let’s look at the account ownership categories. The various types of ownership categories are single accounts, joint accounts, certain retirement accounts (e.g., IRA, 401k, Roth IRA accounts), revocable trust accounts, irrevocable trust accounts, corporate and partnership accounts, and employee benefit accounts (see below for coverage amounts per account ownership category). If an individual owns more than one type of account within an ownership category, such as an IRA account and a Roth IRA account (both retirement accounts), these would be combined for purposes of calculating the FDIC insured amount.
Account Category Coverage Amount
Individual Account (Single owner) $250,000
Joint Accounts (Typically two owners) $250,000 per co-owner
Revocable Trusts $250,000 per unique trust beneficiary
Retirement Accounts $250,000 per individual
Let’s look at a quick example involving ownership categories. A married couple owns a joint checking with $150,000, joint savings with $350,000, jointly held CDs worth $100,000, and a savings account titled in the name of a trust (two beneficiaries) with $500,000 all at one bank. The easiest way to determine the amount of FDIC coverage is to break out each co-owner’s share, as summarized below.
Deposit Type Account Category Account balance Share per Owner
Joint Checking Joint $150,000 $75,000
Joint Savings Joint $350,000 $175,000
CDs Joint $100,000 $50,000
Savings – Trust Revocable Trust $500,000 $250,000 per beneficiary
• The total share per owner within the joint category is $300,000. In this scenario, only $250,000 is covered per owner and there is a total of $100,000 in those accounts that is over the FDIC limit. The owners would need to transfer $100,00 from one of the joint accounts to a different institution or open an individual account to gain additional FDIC coverage.
• The entire $500,000 of the trust savings account would be covered.
As you can see, there are ways to get substantial FDIC coverage at one bank if the account categories are maximized. For instance, a married couple could have two single accounts with $250,000 each, a joint account with $500,000, a trust account (again assume two beneficiaries) with $500,000, for a total of $1,500,000 in FDIC insured cash at one bank.
Another common scenario for clients is owning several CDs, which often add up to an amount above $250,000 (for an individual). For example, if a client, within their Schwab account, owns three separate $100,000 CDs with different banks, the entire $300,000 would be FDIC insured. This is because the CDs are technically with three different institutions, even though they are purchased through the Schwab account.
There are countless scenarios and ways to maximize FDIC protection. We constantly strive to maintain cash accounts within these limits to keep our client’s cash safe. We are always happy to discuss any questions or particular scenarios you have about FDIC limits or any other issue on your mind so please reach out to us any time. For now, know that keeping your cash positions safe and within the FDIC limits is a priority for us. We often refer to cash holdings as “sleeping at night money” and we want to continue to help you all sleep soundly knowing that your cash is safe.
For more information and additional examples, the FDIC website is a good resource. See FDIC and some additional tools that are helpful for consumers, including bankfind, electronic deposit insurance calculator, and FDIC’s phone number (1-877-275-3342).