What Is FDIC Insurance? (2024)

Putting your money in a bank account is probably safer than stashing it underneath a mattress or hiding it in a box by an interchange off the I-295. But why exactly is it safe?

If you park your money into an FDIC-insured bank account, you can rest assured your money is safe in the rare case the bank goes belly-up or suffers a theft.

While bank failures are a rare occurrence, they do happen. FDIC insurance protects up to $250,000 per depositor, per insured bank. This is the case for each account ownership category.

FDIC insurance is provided by the Federal Deposit Insurance Corporation (FDIC), an independent federal government agency tasked with safeguarding account holder's money should a bank fail or suffer theft.

If you'd like to learn more about how FDIC insurance protects your money stashed in bank accounts, we'll go over what's covered by FDIC insurance, what's not covered, how to check if your account is FDIC insurance, and its coverage limits.

What’s covered by the FDIC?

The FDIC protects traditional accounts, such as standard deposit accounts:

  • Checking accounts
  • Saving accounts
  • Money market deposit accounts
  • Certificates of deposits (CDs)
  • Prepaid cards (as long as they meet specific FDIC criteria)
  • Cashier's checks and money orders

You don’t have to take any action to be ensured. You're automatically covered if the financial institution you do your banking at is an FDIC-insured bank. You'll want to ensure you're putting your money into a deposit account.

What’s not covered by the FDIC?

Non-deposit accounts and non-traditional accounts generally aren't protected by the FDIC:

  • Stock investments
  • Bond investments
  • Mutual funds
  • Life insurance policies
  • Annuities
  • Municipal securities
  • Safe deposit boxes and contents
  • Crypto assets
  • U.S. Treasury bills, bonds or notes

While these products might be offered at your bank, only deposit accounts are insured by the FDIC. If they're not deposit accounts, then they're not backed by the FDIC. The money you put into these financial products won't be insured.

The FDIC does not back accounts from credit unions. The National Credit Union Administration (NCUA) protects up to $250,000 in particular accounts for its member credit unions.

How to check if your account is FDIC insured:

  1. Look for the FDIC sign. This is typically displaced at the teller stations inside brick-and-mortar branches. This is tangible proof that the FDIC will insure your money.
  2. Ask a bank rep. If you're curious whether your bank is an FDIC-insured one, you can also contact your bank and inquire.
  3. Call the FDIC. You can reach out to the FDIC directly at 877-275-3342.
  4. You can use the FDIC's BankFind tool to search and check whether the FDIC backs a bank.

Curious which banks that operate out of New Jersey are FDIC insured? FDIC-insured banks include Peapack-Gladstone Bank, Provident Bank, Union County Savings Bank, and The First National Bank of Elmer.

FDIC insurance coverage limits

FDIC insurance will back up $250,000 per deposit, per insured bank, per ownership category. Ownership category is how you own the account. Here are the different types of ownership categories:

Ownership categoryCoverage limit

Single accounts

$250,000 per owner

Joint accounts

$250,000 per co-owner

Certain retirement accounts (i.e., IRAs)

$250,000 per owner

Revocable trust accounts

$250,000 per owner per unique beneficiary

Irrevocable trust accounts

$250,000 per noncontingent interest of each beneficiary

Employee benefit plan accounts

$250,000 per noncontingent interest of each plan participant

Government accounts

$250,000 per official custodian

Corporation, partnership, and unincorporated association accounts

250,000 per corporation, partnership, or unincorporated beneficiary

To sum things up: The total amount in all the accounts owned by the same person at the same financial institution cannot be more than $250,000.

For example: you have a savings and checking account with the same bank. You have $200,000 stashed in your savings account with a bank. In that case, you can't have more than $50,000 in your checking account.

What happens if an FDIC insured bank fails

You can rest easy knowing the FDIC has your back if an FDIC-insured bank fails. The FDIC will pay the bank's depositors insurance up to the covered amount. In the past, the FDIC was known to pay the depositors within a few days after a bank failed.

This is done in one of two ways: giving the depositor a new account at a different bank with the same balance amount; or paying the deposit the covered amount that was lost in the failed bank. So if someone had $5,000 in a savings account, and the bank failed, the FDIC would pay that person $5,000.

FDIC insurance pros and cons

While it's great to have the money stashed in your bank account protected, putting your account in an FDIC-backed account has some advantages and downsides. Let's start with the plusses:

Pros

There are quite a few positives:

High amount of coverage. FDIC insurance guarantees a significant amount: $250,000 of all combined accounts. That typically is plenty of coverage.

Built-in coverage. You don't have to sign up or pay a fee for your money to be insured. When you open an eligible account and park your money into it, protection kicks in right away.

Cons

Now, for the minuses:

Money that exceeds the limit won't be covered. Should you have more than $250,000 in all the insured deposit accounts with a bank, keeping it all in one place doesn't make sense. You're probably better opening accounts with another FDIC-insured bank and moving some of your money there. That way, all your money will be protected.

Might not be enough coverage for a business. Small businesses with total funds exceeding $25,000 will have to resort to opening multiple accounts at different banks.

While bank failures are few and far between, they do happen. Knowing how to best safeguard your money and how FDIC insurance works can help you ensure your money is protected.

This story was written by NJ Personal Finance, a partner of NJ.com. The information presented here is created independently from the NJ.com editorial staff, and purchases made through links in this article may result in NJ.com earning a commission.

What Is FDIC Insurance? (2024)

FAQs

What is FDIC insurance? ›

What best describes what FDIC insurance is? ›

A: The FDIC (Federal Deposit Insurance Corporation) is an independent agency of the United States government that protects bank depositors against the loss of their insured deposits in the event that an FDIC-insured bank or savings association fails.

What is the FDIC for dummies? ›

The FDIC protects depositors of insured banks located in the United States against the loss of their deposits, if an insured bank fails. Any person or entity can have FDIC insurance coverage in an insured bank. A person does not have to be a U.S. citizen or resident to have his or her deposits insured by the FDIC.

Does the FDIC have enough money? ›

By the end of 2022, the FDIC reported that its Deposit Insurance Fund had a balance of $128 billion—less than half of the $262 billion that might be needed.

Is FDIC insurance a good thing? ›

Bottom line. In the event of a bank failure, FDIC insurance provides crucial protection for consumers' deposits. With up to $250,000 in coverage per depositor, per FDIC-insured bank, per ownership category, it's important for individuals and businesses to understand the limits and guidelines of this insurance.

How does FDIC pay you? ›

Historically, the FDIC pays insured deposits within a few days after a bank closes, usually the next business day. In most cases, the FDIC will provide each depositor with a new account at another insured bank. Or, if arrangements cannot be made with another institution, the FDIC will issue a check to each depositor.

Does FDIC insurance cover theft? ›

What is FDIC insurance? Your deposits are insured only if your bank has Federal Deposit Insurance Corporation (FDIC) deposit insurance. This insurance covers deposits in the event of a bank failure, but it does NOT cover losses due to fraud and theft.

How do I insure $2 million in the bank? ›

Here are seven of the best ways to insure excess deposits that you may have.
  1. Understand FDIC limits. ...
  2. Use bank networks to maximize coverage. ...
  3. Open accounts with different ownership categories. ...
  4. Open accounts at several banks. ...
  5. Consider brokerage accounts. ...
  6. Deposit excess funds at a credit union.
Feb 29, 2024

Are any banks not FDIC-insured? ›

Key Takeaways. Most, but not all, banking institutions are insured by the FDIC.

How does FDIC protect me? ›

The FDIC provides deposit insurance to protect your money in the event of a bank failure. Your deposits are automatically insured to at least $250,000 at each FDIC-insured bank.

What is the main purpose of FDIC? ›

FDIC is an independent agency of the United States Government that protects you against the loss of your insured deposits if an insured bank fails.

How much does the FDIC insure for a beneficiary? ›

Each owner is insured up to $250,000 per beneficiary up to a maximum of $1,250,000 when five or more beneficiaries are named.

Why don t millionaires worry about FDIC insurance? ›

Millionaires don't worry about FDIC insurance. Their money is held in their name and not the name of the custodial private bank.

What would happen if the FDIC ran out of money? ›

Still, the FDIC itself doesn't have unlimited money. If enough banks flounder at once, it could deplete the fund that backstops deposits. However, experts say even in that event, bank patrons shouldn't worry about losing their FDIC-insured money.

Is your money safe if a bank fails? ›

For the most part, if you keep your money at an institution that's FDIC-insured, your money is safe — at least up to $250,000 in accounts at the failing institution. You're guaranteed that $250,000, and if the bank is acquired, even amounts over the limit may be smoothly transferred to the new bank.

Where do millionaires keep their money if banks only insure 250k? ›

Millionaires can insure their money by depositing funds in FDIC-insured accounts, NCUA-insured accounts, through IntraFi Network Deposits, or through cash management accounts. They may also allocate some of their cash to low-risk investments, such as Treasury securities or government bonds.

Is it safe to have more than $250000 in a bank account? ›

An account that contains more than $250,000 at one bank, or multiple accounts with the same owner or owners, is insured only up to $250,000. The protection does not come from taxes or congressional funding. Instead, banks pay into the insurance system, and the insurance provides their customers with protection.

Does FDIC cover $500,000 on a joint account? ›

For example, if the same two co-owners jointly own both a $350,000 CD and a $150,000 savings account at the same insured bank, the two accounts would be added together and insured up to $500,000, providing up to $250,000 in insurance coverage for each co-owner.

How much money is FDIC insured per person? ›

FDIC deposit insurance covers $250,000 per depositor, per FDIC-insured bank, for each account ownership category.

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