The information is plastered everywhere you Bank. It says that your deposits are insured up to $250,000, which is the standard insurance limit on assets that you hold in your bank account(s). Few people have had reasons to even pay attention to this amount.

After all, as long as you don’t own that much, worrying about the inner workings of the deposit insurance system is irrelevant. But if you do, then you’re likely to see the whole issue under a new light. In any case, I believe it’s always important to know exactly how stuff works, especially when it comes to money.

What you thought wasn’t relevant today might turn out to be the most excruciatingly important detail a few weeks or months down the line. In that light, let’s examine the deposit insurance system and maybe you can figure out where you fit and how much (if any) of your money is uninsured.

Origins Of The FDIC

FDIC stands for Federal Deposit Insurance Corporation. It was created in 1933 and its main mission is to protect consumers who hold their money in banks from bank failures. The simplified take on how the system works is that as long as your money is held in a bank account, you (as a depositor) are insured up to $100,000 in the event that your bank collapses.

From its inception date, it’s easy to see that the FDIC’s inception was spurred by the Great Depression. After the stock market crash of October 1929, many banks failed, causing bank depositors in many cases to lose most or all of their money. Then-President Franklin Delano Roosevelt and Congress thus responded by creating the FDIC to guarantee the safety of bank deposits and regain the public’s confidence in the banking industry.

Is My Banking Institution Insured? What Exactly Does The FDIC Insure?

The FDIC regulates all banks that are members of the Federal Reserve System, as well as certain banks that are not members of the Federal Reserve System. To find out whether your bank or savings institution is insured by FDIC, call toll-free 1-877-275-3342, or look for the official FDIC sign where deposits are received.

The FDIC insures all deposits at insured banks, including checking, NOW and savings accounts, money market deposit accounts, and certificates of deposit (CDs), up to the insurance limit. The FDIC does not insure the money you invest in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if you purchased these products from an insured bank.

Why Should I Care About FDIC Insurance?

It is the FDIC’s mission to monitor and regulate the banking industry, making sure that banks operate safely and legally, and to prevent bank failures while encouraging healthy competition within the industry.

When you bank at an FDIC-insured institution, you have the added confidence that said institution must meet high standards for financial strength and stability, because the FDIC, with other federal and state regulatory agencies, regularly reviews the operations of insured banks to ensure these standards are met. If your insured bank happens to fail, FDIC insurance will cover your deposits, dollar for dollar, including principal and any accrued interest, up to the insurance limit.

Historically, insured deposits are available to customers of a failed bank within just a few days. Since the start of the FDIC in 1933, no depositor has ever lost a penny of insured deposits.

How Much Money Does FDIC Insure?

The basic insurance amount is $250,000 per depositor per insured bank. If you and your family have $250,000 or less in all of your deposit accounts at the same insured bank, you do not need to worry about your insurance coverage — your deposits are fully insured.

How Can I Maximize My FDIC Coverage? How Much Money Is Insured If I Have A Joint Account?

There are several options that let you maximize FDIC insurance up to $2 million.

For example, adding another person (as a joint account holder) onto an account doubles the amount of available insurance to $500,000, as long as both owners have equal right to withdraw money from the joint account. Under FDIC rules, each person’s share of each joint account is considered equal unless otherwise stated in the bank’s records. Each co-owner’s share of the account is added together and insured up to $250,000, providing up to $500,000 in coverage for the joint account.

So, if you share a joint account, you’ll get half of it back up to the maximum of $250,000 for yourself.

Is My IRA Insured?

Before I answer this one, a little bit of background is in order.

IRA stands for Individual Retirement Arrangement (not Account). This is a common misconception. If you don’t believe me, take it from the IRS. An IRA is technically not an account, it’s not an investment (See my related post, A 401k Is Not An Investment). All an IRA does is give special tax status to the money that is in it. You can have deposit accounts, investments, and even real estate (under certain conditions) in an IRA.

Now that that has been cleared up, let’s circle back to the question. We are going to make a distinction between traditional banking products held in an IRA and everything else. Traditional banking products would be savings accounts, CDs, money market accounts, and the such.

• Traditional banking products held in an IRA are insured up to $250,000, on top of the $250,000 of standard FDIC insurance.
• Investments that are based on market performance are NOT insured.

So if a couple were to hold a joint savings account plus two separate CDs held in an IRA, they already have $1,000,000 in federal insurance coverage.

Does FDIC Cover Money Split Between Different Banks?

Under FDIC rules, you also get double coverage if you split your assets between two different banks, but the double coverage does not apply if the funds are split between two different branches of the same bank.

Therefore the couple in the previous example would get $2,000,000 in federal insurance coverage if they were to split their assets between 2 different banks.

How Do I Get Money From A Failed FDIC-Insured Bank? How Long Does It Take?

When you’re a depositor at an FDIC-insured bank, you get the benefits of having insurance without having to pony up the premiums, because the bank pays the premiums for each depositor. This is what makes up the FDIC’s insurance fund, which which the company withdraws to cover deposits at failing banks.

The process goes like this: When a bank fails, the FDIC steps in and takes over in what’s called a conservatorship. The FDIC uses money from its pool to reimburse the bank’s depositors. It then sells the failed bank’s assets and uses the profits to assist when other banks fail. The FDIC is usually able to sell a bank pretty quickly. That usually means finding another (healthy) bank to assume the failed bank’s business. This is usually seamless and you might not even notice it, except for a letter in the mail letting you know that your bank has been taken over. In that case, “getting your money” becomes irrelevant.

If the FDIC isn’t able to find a bank willing to take over the failed one, they will send you a check in the mail for the loss up to the insured limit. Although this will get done as quickly as possible, you may not have access to funds during the interval, which lasts no more than a few days.

Stretch Your FDIC-Insured Dollars To The Max!

Is $2,000,000 of FDIC coverage not enough for you? You’ll be glad to know that you have options.

IntraFi Network Deposits (formerly CDARS)

Intrafi Network Deposits is better known by its former name: Certificate of Deposit Account Registry Service, or CDARS. It offers up to $50 million in deposit coverage through its network of roughly 2,500 banks. (Visit the company’s website to find a network member near you).

• You select what maturities (ranging from four weeks to five years) and terms best suit your investment needs.
• You work with one network member to secure your large deposits. That home bank takes care of splitting your deposit among as many partner banks as necessary
• You can specify any financial institution you don’t want to use (one you’re already using, for instance).
• You’ll earn one rate (set by the home bank, no need to negotiate multiple rates or manually tally disbursements for each CD)
• You’ll get one statement (no need to consolidate statements at the end of each month, quarter, or year)
• You’ll receive one form at tax time (no need to manually consolidate statements or interest you’ve received).

Folio Investing

This firm offers a program that provides high coverage limits of FDIC-backed insurance. Your cash is automatically distributed (into money-market accounts) for you across several different banks — each one of which insures up to $250,000 of cash deposited. Funds are available on demand, so the money earns a relatively low rate — recently just 0.72% at the top end of Folio Investing’s range of options. At the time of writing this article, their network was 13 bank strong; as they add more banks to their program, the amount of FDIC insurance available to their clients is raised automatically.

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As you can see, the FDIC insurance system is not as straightforward as it sounds. It’s in your best interests to educate yourself so that you can take full advantage of it. Call your banker or broker and have them assess your situation and give you options if needed. With today’s cutthroat competition among banks, they’re more likely to assist you than let you go to a competitor.

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