Back in June 2016, I had a drink with a very smart friend who explained to me that he had all of his savings concentrated in two online savings accounts, including over $1 million in a savings account at subsidary of a UK bank, and that he slept well at night. Less than a week later, the UK's referendum on Brexit caused that bank to appear - at least 24 hours - to be spiraling towards receivership. And, of course, less than a decade earlier, Lehman and Bears Stearns seemed to spiral into catastrophe from nothing, leading to sleepless nights for many, including savers who had cash deposits with those institutions.
Having money in excess of the Federal Deposit Insurance Corporation ("FDIC") limits - or National Credit Union Administration ("NCUA") limits for credit unions - defies the very point of having a savings account, and exposes you to unnecessary risks. There are so many FDIC insured banks with strong savings and short term CD rates that even the very wealthy can divide their money in $250,000 increments in a way to avoid overexposing themselves to a bank failure. (The super wealthy – those with tens of millions of dollars in cash - should look at CDARS programs to protect their assets from bank failures).
What is covered?
FDIC insurance is pretty simple. All you need to know is that it covers bank accounts, such as checking accounts, savings accounts and Certificates of Deposit. It does not cover other products you may purchase from a bank, such a mutual funds, commodities, annuities, or life insurance. (In the event of a bank failure, SIPC insurance may protect certain securities from disappearing, although it does not insure the value of those securities). The attraction in FDIC insurance is that backed by the full faith and credit of the US. As long as you stay within the limits, every penny in your bank accounts is going to be deposited in an account with your name on it the day after the bank becomes insolvent.
To be fully insured, you must make sure that your deposits follow the FDIC guidelines and limits. These guidelines are based on different account ownership categories, with up to $250,000 of coverage allowed for each category of account ownership you have in one bank, not by how many accounts you have in that bank. It is important to understand that if you have a CD with $250,000, a savings account with $250,000, and checking account with $100,000 at the same bank in the same ownership category, you are exposed to the bank in the amount of $350,000.
The account ownership categories are:
1. Single Accounts
A single account is a deposit held in one person’s name only or held in account for one person only.
2. Certain Retirement Accounts
This includes Traditional IRAs, Roth IRAs, SEP-IRAs, SIMPLE IRAs and self-directed defined contribution plans
3. Joint Accounts
A joint account is a deposit owned by two or more people.
4. Revocable Trust Accounts
In general, the owner of a revocable trust account is insured up to $250,000 for each unique beneficiary.
5. Irrevocable Trust Accounts
Irrevocable trust accounts are held in connection with a trust in which the owner gives up all power to cancel or change the trust.
6. Employee Benefit Plan Accounts
These are a deposit of a pension plan, defined benefit plan or other employee benefit plan that is not self-directed.
7. Corporation/Partnership/Unincorporated Association Accounts
Deposits owned by corporations, partnerships, and unincorporated associations, including for-profit and not-for-profit organizations.
8. Government Accounts (also called Public Unit accounts)
The United States, including federal agencies
- Any state, county, municipality (or a political subdivision of any state, county, or municipality), the District of Columbia, Puerto Rico and other government possessions and territories
- An Indian tribe
For complete guidelines for each type of ownership category, the FDIC has prepared this page. If you have specific questions about your own circumstances you should use the FDIC’s Electronic Deposit Insurance Estimator.
What about NCUA coverage?
The National Credit Union Administration provides very similar, though not identical coverage, to the FDIC that is also based on a $250,000 cap for each ownership category (with similar ownership category) for federally chartered credit unions. State chartered credit unions may also be protected so long as they display the NCUA logo on their website and in their facilities. If you think you may be in excess of NCUA limits at a single credit union, you should download and read the NCUA’s insurance brochure.
While all banks listed on BestCashCow.com are insured by the FDIC, please note that we also provide information on state chartered credit unions on BestCashCow.com that are not insured by the NCUA (this information can be found on the credit union's information page).