What’s protected?
Bank deposits are protected by the Federal Deposit Insurance Corporation (FDIC), an independent agency backed by the full faith and credit of the U.S. government. FDIC insurance covers both demand deposits, such as checking, NOW, savings, and money market deposit accounts, and time deposits, such as certificates of deposit (CDs). It covers both principal and any interest accrued as of the date that an insured bank closes.
FDIC coverage does not include mutual funds, stocks, bonds, life insurance policies, annuities, or other securities, even if they were bought through an FDIC-insured bank. It also does not cover U.S. Treasury securities, though these are backed separately by the full faith and credit of the U.S. Treasury. Finally, the FDIC does not insure safe-deposit boxes, though if a bank were to fail, the FDIC would typically either arrange for transfer to another bank or notify you to retrieve the contents.
How much is insured?
The Emergency Economic Stabilization Act of 2008 temporarily increased the amounts that are FDIC insured at an individual bank or savings and loan. The legislation states that the increase in standard coverage is effective through December 31, 2009, though there has been widespread discussion of making the increased limits permanent.
The previous limit of $100,000 per individual per bank was increased to $250,000. The $250,000 limit applies to single-owner accounts, such as those held in one person’s name, those established for another individual (e.g., an UTMA or escrow account), sole-proprietor (“DBA”) accounts, and accounts established for the estate of a deceased person.
You can’t increase your protection just by opening multiple accounts in your name at the same bank (for example, splitting money between a checking and a savings account, or opening accounts at more than one branch).
What if I have more than $250,000?
The simplest approach is to have accounts at more than one bank. However, your coverage at an individual bank depends on how accounts are owned; different types of accounts are insured separately. You can exceed the $250,000 limit as long as the deposits represent different categories of ownership. For example, a joint account qualifies for up to $250,000 of coverage for each person named as a joint owner. That coverage is in addition to the $250,000 maximum coverage for each person’s aggregated single-owner accounts at that bank. For example, a married couple with three accounts at one bank–they each have $250,000 in an individual account, and they also have $200,000 in a joint account–would qualify for insurance on the entire $700,000.
The limit on the amount protected in one or more retirement accounts at one bank also is $250,000; this is separate from the $250,000 coverage of individual accounts. (Remember, however, that FDIC insurance applies only to deposit accounts, not to any securities held in an IRA or other retirement account.) An online calculator at the FDIC website, www.fdic.gov, can help you estimate the total coverage on your deposit accounts.
Additional safety nets
In some states, a state-chartered savings bank is required to have additional insurance to cover any losses beyond the FDIC limits. Some banks also may participate in the Certificate of Deposit Account Registry Service (CDARS), which enables a bank to spread large CD deposits among multiple banks while keeping the amount at each individual bank within FDIC limits. Paying attention to your bank balances and account ownership can help protect you in a worst case scenario.