Even with the high-profile closures of Silicon Valley Bank and Signature Bank, bank failures are still rare. That said, it’s smart to take precautions to make sure your bank deposits are fully protected.
There are two main types of deposit insurance:
- The Federal Deposit Insurance Corp. insures deposits at most banks.
- The National Credit Union Administration insures deposits at most credit unions.
How Does FDIC Coverage Work?
Deposits are insured up to $250,000 per depositor, per ownership category, per institution.
These examples illustrate how that works:
- You and your spouse have individual savings accounts at the same bank, each with $200,000 deposited. You’re fully insured because your accounts have different depositors – you and your spouse.
- You have two checking accounts at two different banks, each with $200,000 deposited. You’re fully insured because your accounts are at two different institutions.
- You have a personal account and a business account at the same bank, each with $200,000 deposited. You’re fully insured because your accounts are in different ownership categories – personal and business.
- You have two individual personal checking accounts at the same bank, each with $200,000 deposited. You’re insured only up to $250,000 because both of your accounts have the same depositor, ownership category and institution.
When it comes to living trusts, however, FDIC coverage is “calculated differently than most people expect,” says Stephen Reh, a financial advisor at Reh Wealth Advisors in San Dimas, California. The $250,000 limit applies “per beneficiary, per grantor.”
For example, if two spouses have two children and each parent has set up a trust for each child, coverage would extend to $2 million. The math is: $250,000 from the father for Child 1 and another $250,000 for Child 2, then $250,000 from the mother for Child 1 and another $250,000 for Child 2.
How Can You Insure More Than $250,000?
The $250,000 limit may sound high, but there are some common situations when you may have more cash in a bank, such as if:
- You sold your home.
- You’re saving to buy a home.
- You received an inheritance.
- You own a business.
- You sold a business.
- You’re repositioning investments before retirement.
- You’re retired.
- You have trust accounts.
Here are four ways you may be able to insure more than $250,000 in deposits:
- Open accounts at more than one institution. This strategy works as long as the two institutions are distinct. To confirm that, check their FDIC certificate numbers, which are unique to each bank.
- Open accounts in different ownership categories. Examples of categories include single, joint, retirement account, trust, business, employee benefit plan and government. Accounts may need to meet certain requirements to be covered.
- Use a network. Networks are designed to help depositors insure large sums. For example, IntraFi Network Deposits divides big deposits into demand deposit accounts, money market deposit accounts and certificates of deposit at FDIC-insured banks, and a Max checking account allocates deposits among FDIC-insured banks to try to maximize interest earnings. Services like these may involve fees.
- Open a brokerage deposit account.
Most large brokerage companies offer FDIC-insured bank accounts.
“An FDIC brokerage cash account will keep your money federally insured, and since it’s linked with a brokerage house, you can easily execute trades into the market,” says Elliot J. Pepper, co-founder and certified financial planner at Northbrook Financial in Baltimore.
The Securities Investor Protection Corp. insures securities held in investment accounts up to $500,000 with a $250,000 limit for cash. This insurance doesn’t protect you from investment losses, but it steps in if your brokerage company fails.
“Most brokerage accounts will often offer additional coverage,” says Chris Struckhoff, financial planner at Creative Planning in Irvine, California.
Consider Where You’re Putting Your Money
FDIC-insured accounts keep your money safe, but typically don’t pay much interest. If you’re seeking a higher return, you may want to consider investment opportunities that sacrifice some safety for the prospect of a larger reward.
