What is FDIC insurance?
FDIC insurance is cover for cash deposits in bank accounts. The Federal Deposit Insurance Corporation (FDIC) provides this service.
It covers the first $250,000 per cash deposit account. This gives bank customers good protection if their bank faces financial difficulties. Without the safety of FDIC insurance, these account holders might lose their deposits.
The FDIC insurance scheme only protects cash, not other investments.
What falls within the scope of FDIC insurance coverage?
FDIC coverage is quite specific, but the total FDIC limit is generous, as you can see below.
The protection of FDIC coverage includes cash deposits made with banks. It covers bank accounts like checking and savings accounts. It also protects bank-issued money orders and some other cash deposits.
It does not include non-cash investments and securities. The SIPC protection scheme might protect these instead. The customer must invest via a broker-dealer that is a member of the SIPC for this to be the case.
You may deposit cash with a financial provider that buys securities with your money. These will fall outside of the scope of FDIC coverage. But SIPC protection might protect them instead.
What is and isn't covered by FDIC insurance?
FDIC coverage includes cash deposits in insured bank accounts. It does not cover other forms of investment or deposits used to buy securities for customers. Some examples of what FDIC insurance coverage protects include:
- Checking Accounts.
- Money Market Deposit Accounts (MMDAs)
- Negotiable Order of Withdrawal (NOW) Accounts.
- Savings Accounts.
- Time Deposits (e.g. Certificates of Deposit).Other bank-issued cash items (e.g. Cashier's Checks and Money Orders).
You may have cash deposits and other securities and investments. It's important to know the different levels of cover that apply to these. You should also know which scheme protects which type of investment.
This is especially the case with cash investments not covered by FDIC insurance. They could still be worth up to $250,000 of an SIPC protection claim.
What is the FDIC insurance limit?
The FDIC limit is $250,000 per person per ownership category per insured institution.
Ownership categories include, for example:
- Single Accounts.
- Joint Accounts.
- Some Retirement Accounts.
- Revocable Trust Accounts.
In the case of a joint account, both named account holders get the full $250,000 of protection. This means the total FDIC limit on the account is $500,000.
Some trust accounts may have three or more named beneficiaries. In this case, the FDIC limit would be $750,000 or more. This is the basic $250,000 limit multiplied by the number of beneficiaries.
You can hold accounts in more than one ownership category. FDIC insurance protects each category up to $250,000 each. This means you can increase your total FDIC coverage even if the accounts are all with the same bank.