Understanding FDIC Insurance Coverage

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The Federal Deposit Insurance Corporation (FDIC) is an independent government agency that protects bank depositors against losses (up to a certain limit) if an FDIC insured bank fails. The FDIC is funded by premiums that member banks pay for deposit insurance coverage.

Since its creation in 1934 following a series of bank failures in the late 20s and early 30s, no depositor has lost a penny of insured funds at an FDIC insured bank because of a bank failure.¹

Insurance Coverage Limits

“The standard deposit insurance amount is $250,000 per depositor, per insured bank, for each ownership category.”²

For a single account (owned by one person) the FDIC will insure all deposits up to $250,000 per insured bank.³ For example, if a single account owner has a $10,000 checking account and $20,000 worth of Certificates of Deposit (CDs) at the same FDIC insured bank, all $30,000 at this bank is insured because it is below the $250,000 limit.

On the other hand, if this same single account owner deposits $240,000 into their checking account, they will now be over the $250,000 limit since they will now have $270,000 at this bank ($250,000 in their checking account plus $20,000 worth of CDs) and they will have $20,000 in uninsured deposits.

For a joint account (owned by more than one person), the FDIC will insure all deposits up to $250,000 per co-owner.⁴For example, if a couple has $200,000 in their joint checking account and $100,000 worth of CDs owned jointly at the same FDIC insured bank, all $300,000 at this bank is insured because the amount per depositor ($150,000) is below the $250,000 limit.

The FDIC website offers a tool to help you calculate your insurance coverage: https://edie.fdic.gov

Credit Unions

While credit unions are not covered by FDIC insurance, the National Credit Union Administration (NCUA) offers similar deposit insurance for its member institutions: up to $250,000 per depositor, per credit union, for each ownership category.⁵

The NCUA website offers an insurance estimator to calculate your insurance coverage: https://mycreditunion.gov/share-insurance-estimator-home

What if you Have Uninsured Deposits?

If you exceed the FDIC insurance limits at your bank, the most straightforward way to safeguard uninsured funds is to move those uninsured funds to another FDIC insured bank.

Another option would be to consider moving uninsured deposits to different ownership categories. FDIC insurance covers $250,000 for each ownership category, even within the same bank.

Recent Bank Failures

Following the recent failures of Silicon Valley Bank and Signature Bank, federal regulators announced that those banks would be resolved in a manner that “fully protects all depositors” including all uninsured deposits.⁶

In testimony to Congress, Treasury Secretary Janet Yellen said that uninsured deposits would only be backstopped if a “failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences.”⁷ In other words, uninsured deposits may or may not be protected in a future bank failure.

Minimizing Risk

It is possible that the next bank failure will not be resolved in a way that fully protects all uninsured depositors. If you have uninsured deposits at a bank, understand that it is possible that you could lose some or all of those uninsured deposits in the event that the bank fails.

Coverage Limits for Trusts

Currently, deposit insurance for irrevocable trusts is capped at $250,000 at each FDIC insured bank in most cases, while revocable trusts with five or fewer beneficiaries are insured up to $250,000 for each beneficiary in most cases.⁸

The FDIC website has an interactive tool to help you understand the coverage limits on your trust account: https://www.fdic.gov/resources/deposit-insurance/trust-accounts/

Effective April 1, 2024, the rules for coverage limits for trusts will be simplified so that trust deposits will be insured up to $250,000 for each trust beneficiary (not to exceed five) for both revocable and irrevocable trusts in most cases.⁹

In the meantime, reach out to your Wealth Manager if you have questions about FDIC coverage limits on your trust account or questions or concerns in general about uninsured bank deposits.

About the Author: A member of the WrapManager Investment Policy Committee, Doug Hutchinson, CFA® is responsible for developing and refining our money manager due diligence and review standards. He is also responsible for monitoring and evaluating current and prospective money managers.

Doug graduated from the University of California, Santa Barbara with a BA in Business Economics. He is a CFA® Charterholder and an active member of the CFA® Society of San Francisco.

Footnotes

1 https://www.fdic.gov/about/what-we-do/index.html

2 https://www.fdic.gov/about/what-we-do/index.html

3 https://www.fdic.gov/resources/deposit-insurance/brochures/deposits-at-a-glance/

4 https://www.fdic.gov/resources/deposit-insurance/brochures/deposits-at-a-glance/

5 https://ncua.gov/files/publications/guides-manuals/NCUAHowYourAcctInsured.pdf

6 https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312b.htm

7 https://www.cnbc.com/2023/03/16/svb-signature-bank-failures-yellen-says-us-banking-system-is-stable-and-deposits-remain-safe.html

8 https://www.fdic.gov/resources/deposit-insurance/brochures/deposits-at-a-glance/

9 https://www.fdic.gov/news/fact-sheets/final-rule-trust-mortgage-accounts-01-21-22.pdf