After 15 years, banking turmoil is back in the headlines. How do you make sure your hard-earned funds are protected against the failure of a financial institution? The FDIC does just that.
Backed by the United State government, the Federal Deposit Insurance Corporation (FDIC) is an independent agency that maintains stability and the public’s confidence in the nation’s financial system by supervising institutions and protecting bank depositors against the loss of their insured deposits if an FDIC-insured bank or savings association fails.
While recent bank collapses may make you nervous, here are some frequently asked questions about FDIC deposit insurance to reassure you.
A: FDIC deposit insurance protects bank customers in the event that an FDIC-insured depository institution fails. Bank customers don’t need to purchase deposit insurance; it is automatic for any deposit account opened at an FDIC-insured bank. The FDIC is not funded by the government, but by the insurance premiums paid by participating banks.
According to the FDIC, as of 2022 about 43% of bank deposits were uninsured. Most individuals and banks are backed by the FDIC. It’s often businesses and larger organizations that have more than $250,000 at a given time.
A: Deposits are insured up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category. Originally $100,000, this higher limit was protected with the 2010 Dodd-Frank reform law following the 2008 financial crisis.
Deposit insurance is calculated dollar-for-dollar, principal plus any interest accrued or due to the depositor, through the date of default. For example, if a customer had a CD account in her name alone with a principal balance of $195,000 and $3,000 in accrued interest, the full $198,000 would be insured.
Coverage is automatic whenever a deposit account is opened at an FDIC-insured bank. If you want your funds insured by the FDIC, simply place your funds in a deposit account at an FDIC-insured bank and make sure that your deposit does not exceed the insurance limit for that ownership category.
A: No. FDIC deposit insurance only covers certain deposit products. The following are examples of deposit products which are insured by the FDIC:
If you have concerns about the safeguards of retirement plan accounts and investments, and more, Alloy Silverstein Financial Services has a helpful summary available. FDIC-insurance does not cover stocks, bonds, life insurance policies, safe deposit boxes, crypto assets, and more.
Keep in mind that the above products are only protected in event of bank failure. FDIC deposit insurance does not protect against losses due to theft or fraud nor does it protect against the default, insolvency, or bankruptcy of any non-bank entity, including crypto custodians, exchanges, brokers, wallet providers, and neobanks.
A: Banking customers at FDIC-insured institutions can get up to $250,000 in coverage for each ownership category, even within the same bank. These include:
Eligible retirement accounts and trust accounts can have one or more beneficiaries.
A: Yes. The FDIC insures deposits according to the ownership category in which the funds are insured and how the accounts are titled. The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category.
Deposits held in different ownership categories are separately insured, up to at least $250,000, even if held at the same bank. For example, a revocable trust account (including living trusts and informal revocable trusts commonly referred to as payable on death (POD) accounts) with one owner naming three unique beneficiaries can be insured up to $750,000.
To calculate your specific deposit insurance coverage, you can use the FDIC’s Electronic Deposit Insurance Estimator (EDIE).
A: Under FDIC rules, all deposits owned by a corporation, partnership or unincorporated entity (including a for-profit or a not-for-profit organization) at the same bank are added together and insured up to $250,000, separately from the personal accounts of the owners or members.
The deposits of a sole proprietorship — an unincorporated business owned by one individual using a business name — are insured together with any personal funds the owner may have at the same bank in the single-ownership insurance category, up to $250,000 in total.
Mostly due to payroll, businesses are much more likely to exceed the standard $250,000. The main purpose of the corporation, partnership, LLC, or unincorporated organization making the deposit has to be other than to increase deposit insurance coverage by the FDIC.
A: While the FDIC insures about 4,700 banks and financial institutions as of 2023, there are some that are not FDIC-insured. For instance, credit unions have their own insurance fund run by the National Credit Union Administration (NCUA).
To determine if a bank is FDIC-insured, you can ask a bank representative, look for the FDIC sign at your bank, or you can use the FDIC’s BankFind tool. BankFind allows you to access detailed information about all FDIC-insured institutions, including branch locations, the bank’s official website, the current operating status of your bank, and the regulator to contact for additional information and assistance.
A: You can get detailed information about your specific deposit insurance coverage by accessing the FDIC’s Electronic Deposit Insurance Estimator (EDIE) and entering information about your accounts. You can also visit the FDIC Information and Support Center to submit a request for deposit insurance coverage information or you can also call the FDIC at 1-877-ASK-FDIC (1-877-275-3342) and an FDIC deposit insurance specialist will help you calculate your deposit insurance coverage.
See Are My Accounts Insured by the FDIC?
A: In the unlikely event of a bank failure, the FDIC responds in two capacities.
First, as the insurer of the bank’s deposits, the FDIC pays insurance to depositors up to the insurance limit. Historically, the FDIC pays insurance within a few days after a bank closing, usually the next business day, by either 1) providing each depositor with a new account at another insured bank in an amount equal to the insured balance of their account at the failed bank, or 2) issuing a check to each depositor for the insured balance of their account at the failed bank.
In extreme financial stress, systemic risk exception can be declared to help protect larger deposits. In some cases—for example, deposits that exceed $250,000 and are linked to trust documents or deposits established by a third-party broker—the FDIC may need additional time to determine the amount of deposit insurance coverage and may request supplemental information from the depositor in order to complete the insurance determination.
Second, as the receiver of the failed bank, the FDIC assumes the task of selling/collecting the assets of the failed bank and settling its debts, including claims for deposits in excess of the insured limit. If a depositor has uninsured funds (i.e., funds above the insured limit), they may recover some portion of their uninsured funds from the proceeds from the sale of failed bank assets. However, it can take several years to sell off the assets of a failed bank. As assets are sold, depositors who had uninsured funds usually receive periodic payments (on a pro-rata “cents on the dollar” basis) on their remaining claim.
Bank Failures in Brief – Summary 2001-2023. Click to view this interactive chart on the FDIC’s website.
A: Here are six actions to consider.
Empowering business owners and individuals in South Jersey and Philadelphia to feel confident through proactive accounting and advisory solutions.
