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Banks are safe and stable places to store your money. Still, recent history has reminded us that these institutions can fail, meaning they can no longer meet their obligations to the people who have deposited money with them or to those they’ve borrowed from.
In the rare case that a bank fails, a customer's money is protected as long as a bank is federally insured. A bank that’s federally insured is backed by the Federal Deposit Insurance Corp. Credit unions offer protection as well, through the National Credit Union Administration. The FDIC insures up to $250,000 per depositor, per institution and per ownership category. FDIC insurance kicks in only if a bank fails.
Here’s a closer look at what the FDIC is, exactly what it insures and how it guards your hard-earned cash.
What it means to have FDIC insurance
Having FDIC insurance means that your money, up to a certain amount, is safe if your bank fails. The FDIC was established in 1933 in response to the many bank failures during the Great Depression . It was created to promote public confidence in the banking system by insuring consumers’ deposits. During the Great Recession, dozens of banks went under. In 2020, four banks failed. Still, since the creation of the FDIC, not one cent of insured deposits has been lost .
Banks aren't insured by default. They apply for FDIC insurance and, like most forms of insurance, it comes at a cost. But you don’t pay a monthly fee, nor do your tax dollars foot the bill. The bank pays the premiums.
» MORE: How to choose a bank
FDIC insurance: What’s covered
The FDIC insures up to $250,000 per depositor, per institution and per ownership category (ownership category refers to who owns the account — skip ahead to read more about this). FDIC insurance covers the following deposit accounts and other official items issued by an insured bank :
Cashier's checks and money orders.
Negotiable order of withdrawal accounts.
FDIC insurance: What’s not covered
Here’s what isn’t protected by the FDIC :
Investments in stocks, bonds or mutual funds.
Losses incurred from investments, even if they were purchased from an insured bank.
Life insurance policies.
Contents of a safe deposit box housed at a bank.
U.S. Treasury bills, bonds and notes also aren't covered by FDIC insurance, but they are backed by the full faith and credit of the federal government.
FDIC insurance limits and ownership categories
What does it mean to have FDIC insurance coverage up to $250,000 per depositor, per institution and per ownership category?
Per depositor, per institution: This means that the FDIC insures deposits that one person (the depositor) owns in one insured bank (the institution), and that’s separate from any deposits that person owns in another, different insured bank. If a person owns deposits in different branches of the same insured bank, those deposits are counted together toward the $250,000 limit.
Per ownership category: Ownership category simply refers to who owns the account. The easiest distinction is between single, meaning an account owned by just one person, and joint, meaning an account shared by two or more people. Other kinds of ownership categories include certain retirement accounts, such as IRAs, trust accounts and employee benefit plan accounts.
There’s separate coverage for money that’s in different categories of ownership. So a person who has multiple accounts at an insured bank could qualify for more than $250,000 in coverage if their funds are in accounts that are in different ownership categories and other requirements are met. And if an account is co-owned by two people, for example, that account is insured up to $250,000 per person, for a total of $500,000.
» MORE: How to choose a bank account
Here are the different FDIC ownership categories and the respective insurance limits :
Single accounts (owned by one person)
$250,000 per owner (aka depositor).
Joint accounts (owned by more than one person)
$250,000 per co-owner.
Certain retirement accounts, including IRAs
$250,000 per owner.
$250,000 per depositor per unique beneficiary.
$250,000 per unique beneficiary entitled to the account.
Corporation, partnership and unincorporated association accounts
$250,000 per corporation, partnership or unincorporated association.
Employee benefit plan accounts
$250,000 per plan participant entitled to the account.
$250,000 per official custodian.
» Have a lot of cash to deposit? Learn how to insure over $250,000
Examples of FDIC insurance limits and coverage
Consider some examples to understand the limits of FDIC coverages.
1. You’re single, do your banking in one place and you have:
$50,000 in a checking account.
$100,000 in a savings account.
$200,000 in certificates of deposit.
That’s a total of $350,000 deposited in one bank as one depositor (you), at one institution (your bank) and in one ownership category (single). If your bank were to fail, you’d lose $100,000 because the FDIC would cover only up to $250,000.
Don’t fret, though, because the next-most important thing to know about FDIC coverage is that you can be insured for much more depending on where you keep your accounts and how they are owned. One way to make sure all of your money is insured is to spread it across multiple institutions. Consider the next example.
2. You’re single but you do your banking at two banks, and you have:
$50,000 in a checking account at Bank 1.
$200,000 in a savings account at Bank 1.
$250,000 in certificates of deposit at Bank 2.
That’s a total of $500,000 deposited as one depositor (you) at two institutions (two banks) and in one ownership category (single). Since you have $250,000 at one bank and $250,000 at another bank, all of your money is protected.
Take a look at one more example of how different ownership categories affect how your money is insured.
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. All of this money is protected. The joint savings account is one ownership category (joint), where both you and your spouse are covered up to $250,000 each since you are two different depositors. The certificate of deposit is in a second ownership category (single), so the depositor (you) is covered up to $250,000 for that account.
There are too many combinations to cover them all here. Just know that you have options to make sure all of your money is insured. If you're in danger of bumping up against or exceeding the $250,000 limit at any one institution, consider spreading your money across multiple banks so that all of your funds are insured.