5 Things to Know About FDIC Insurance

You work hard for your money and want to be sure that it is safe. During the financial crisis, many of us became more concerned about the soundness of our banks and the security of our deposits. Our concerns were not without foundation, since, according to the Federal Deposit Insurance Corporation (FDIC), in just the past three years, hundreds of banks have failed (see www.fdic.gov/bank/individual/failed/banklist for a complete list), including 22 in the first seven weeks of 2011.

There is no need to hide your money under your mattress to keep it safe. If you have money in a bank deposit account, it probably is covered by FDIC insurance. However, the FDIC rules can be confusing. Here are 5 things that you need to know about FDIC insurance.

-- FDIC insurance is backed by the full faith and credit of the U.S. government.

-- Coverage amounts to $250,000 per depositor per insured bank per bank account ownership category, with the exception of non-interest-bearing transaction accounts. Non-interest bearing transaction accounts are fully covered through the end of calendar 2012 no matter how much they contain. These are deposit accounts that earn no interest and allow unlimited deposits and withdrawals. A few of the account ownership categories are single ownership, joint ownership, retirement and trust accounts.

-- The limits on FDIC insurance apply to individual legal account ownership categories. This means that an individual with money in two or more different account ownership categories at the same bank may have more than $250,000 of coverage. For example, if you have a personal interest-bearing checking account in your name and a joint savings account in two names, including yours, at the same bank, your personal checking account will be covered up to $250,000 and your share of the joint account will be covered up to $250,000. If you have more than one account at the same bank in the same ownership category (for example, an interest-bearing personal account in your name only and a certificate of deposit or CD in your name only), they will have combined FDIC coverage of $250,000. The FDIC has an excellent estimator at https://www.fdic.gov/edie/calculator.html that you can use to determine how much coverage you have at any one bank.

-- While the amount of FDIC coverage on an individual's deposits at any one bank is limited, total coverage at multiple banks is limited only by the number of qualified banks that exist. For example, if you have $2.5 million and you put $250,000 of it in 10 FDIC-insured deposit accounts at 10 different banks, you would be insured by the FDIC for the entire $2.5 million, even if every one of the banks failed. Thus, you can protect your capital by spreading it around to more than one bank and keeping the amount at each bank within FIDC limits.

-- Only money in bank deposit accounts is insured by the FIDC. Qualified bank deposit accounts include checking, savings, trust, IRA retirement, and money market deposit accounts and CDs. Money in non-deposit accounts, investment accounts or financial instruments is not insured by the FIDC. This includes mutual funds, annuities, life insurance policies, stocks and bonds. Also, money or items in bank safe deposit boxes are not covered by the FDIC. Although Treasuries purchased through a bank are not FDIC-insured, they are backed by the full faith and credit of the U.S. government and, therefore, your investment in them is safe.

As you can see, FDIC insurance coverage is quite substantial and, as a result, with careful management of how much money you have in individual banks, it should be more than adequate to protect you even if one or more of your banks were to fail.

Sources:

http://www.fdic.gov/consumers/consumer/information/fdiciorn.html, FDIC: Insured or Not Insured?

http://www.fdic.gov/consumers/banking/facts/index.html, FDIC: When a Bank Fails - Facts for Depositors, Creditors and Borrowers

http://www.fdic.gov/deposit/deposits/unlimited/index.html, FDIC: Dodd-Frank Act: Frequently Asked Questions

http://www.fdic.gov/deposit/deposits/insured/temporary.html, FDIC: Your Insured Deposits