Everything You Need to Know About the FDIC

March 18, 2023  |  Michael Reilly

Unfortunately, the sudden collapse of several large Regional banks over the last week has that boring old Federal Deposit Insurance Corporation (FDIC) insurance back as a topic of conversation. 

So, we thought it might be helpful to highlight what the FDIC covers and how much… and maybe most importantly, what it does not cover.

The FDIC is an independent agency of the U.S. government that protects and reimburses your deposits up to the legal limit of $250,000 if your FDIC-insured bank were to fail. 

The FDIC was established by the Banking Act of 1933 during the Roosevelt (FDR) administration in response to losses suffered by many Americans during the Great Depression – when thousands of banks collapsed taking account holders’ funds along with them.

If you ever find yourself unlucky enough to have funds on deposit with a bank that fails, you want to know that your money is protected.

Before we talk about what is covered, let’s dispense with what is not covered by FDIC.

  • Stock investments
  • Bond investments
  • Mutual funds
  • Crypto assets
  • Life insurance policies
  • Annuities
  • Municipal securities
  • Safe deposit boxes or their contents
  • U.S. Treasury bills, bonds, or notes (these investments are backed by the full faith and credit of the U.S. government) 

Some of these investments offer other sources of protection including SIPC (but that’s a conversation for another day).

Here’s what you can expect FDIC to cover – essentially, funds held at FDIC-insured banks and savings associations.

  • Checking accounts
  • Savings accounts
  • Certificates of deposit (CDs)
  • Money market deposit accounts
  • Cashiers checks
  • Bank deposits in some retirement accounts like IRAs and 401(k)s (it does not insure investments) 

Let me explain how this works.

The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. 

That means it is possible you can have more than $250,000 at one bank protected by FDIC.

You can maximize the available FDIC coverage by understanding and utilizing multiple account types within the same financial institution or by depositing funds at multiple banks.

Here are a few useful examples.

EXAMPLE 1: You’re single, do your banking at two banks, and you have:

  • $200,000 in a savings account at Bank 1.
  • $50,000 in a checking account at Bank 1.
  • $150,000 in certificates of deposit at Bank 2. 

That is a total of $400,000 deposited at two banks. Therefore your money is protected because you have $250,000 at bank 1 and $150,000 at bank 2.

EXAMPLE 2: You’re single, do your banking in one place, and you have:

  • $200,000 in a savings account.
  • $125,000 in a checking account.
  • $100,000 in certificates of deposit. 

That is a total of $425,000 deposited in one bank. FDIC insurance will only cover up to $250,000, therefore you would lose $175,000 if something happened to the bank. 

If this is your current situation, then it would be prudent to reallocate at least $175,000 with another bank so that your money is protected. 

EXAMPLE 3: You’re married, you both do your banking at the same place, and together you have:

  • $500,000 in a joint savings account shared with your spouse.
  • $250,000 in a certificate of deposit in just your name. 

That’s a total of $750,000 deposited at one bank. All of this money is protected. You are both protected for $250,000 each for the joint account. The $250,000 in the certificate of deposit is also covered because it’s in just your name which is a different ownership category.

Below is a more inclusive list of FDIC-covered categories and amounts for you to be aware of.

Here’s the Bottom Line 

There’s no reason to panic and rush to withdraw money from your bank. Most financial institutions are covered by FDIC insurance and the best part is, you don’t even need to apply. As long as your deposits are held at an FDIC-insured institution you’re covered.

If you’d like to talk more about how Avalon can help you navigate the markets with ease, schedule a free 1-hour consultation with me or one of our other advisors today.

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