Are Your Bank Deposits Insured?

September 14, 2018 — 6:00 AM EDT

During the Great Depression, panicky Americans converted deposits into currency and thousands of banks that could not meet withdrawal demands were forced to close. When the banks closed, depositors ended up losing all of their savings. Consequently, President Franklin Roosevelt signed the Banking Act of 1933, which created the Federal Deposit Insurance Corporation (FDIC). This independent U.S. government agency protects depositors against losses and prevents runs on FDIC-insured banks or savings association banks. Discover which types of deposits the FDIC covers and how to make sure that you are getting the highest level of insurance for your money.

Coverage History

Initially, federal deposit insurance provided up to $2,500 in coverage. By all counts, it was successful in restoring public confidence and stability in the nation's banking system. Only nine banks failed in 1934, whereas more than 9,000 had failed during the preceding four years.

In July 1934, the coverage increased to $5,000. Since then, the maximum insurance has changed as follows:

  • 1950 to $10,000
  • 1966 to $15,000
  • 1969 to $20,000
  • 1974 to $40,000
  • 1978 to $100,000 for IRAs and Keoghs
  • 1980 to $100,000 for all accounts
  • 2006 to $250,000 for self-directed retirement accounts
  • 2008 to $250,000 for all accounts (initially temporary, but was made permanent in 2010)

What's Covered

FDIC insurance covers the principal and any accrued interest through the date of the insured bank's closing on all your bank deposits including: checking, savings, money markets, and certificates of deposit (CDs). FDIC does not insure investments in stocks, bonds, mutual funds (see why), life insurance policies, annuities or municipal securities, even if you bought these from an insured bank. U.S. Treasury bills, bonds and notes are also excluded. These are backed by the full faith and credit of the U.S. government. The FDIC has no jurisdiction over cases or losses incurred by identity theft.

Ownership Counts

The amount of coverage you have in a FDIC Insured Account depends on how you establish the ownership and, if applicable, beneficiary designations.

Single Accounts

Single accounts include those:

  • held in one person's name
  • opened under the Uniform Transfers to Minors Act (UTMA)
  • for a sole proprietorship
  • established for a decedent's estate

The FDIC coverage is $250,000 for the total of all single accounts owned by the same person at the same insured bank.

Joint Accounts

Joint accounts are owned by two or more people, such as couples or business partners. To qualify, all co-owners must:

  • be people, not legal entities such as corporations
  • have equal rights to withdraw funds
  • sign the deposit account signature card

Each co-owner's share of every account that is jointly held at the same insured bank is added together. Joint accounts may be a valuable tool in helping couples manage money. The maximum insured value for each co-owner is $250,000.

Self-Directed Retirement Accounts

Self-directed retirement accounts are retirement accounts in which the owner – not a plan administrator – directs how the funds are invested. Examples include:

  • traditional IRAs
  • Roth IRAs
  • Simplified Employee Pension (SIMPLE) accounts
  • Section 457 deferred compensation plans
  • self-directed Keogh accounts
  • self-directed defined-contribution plans, for example, 401(k) plans

All self-directed retirement funds owned by the same person in the same FDIC-insured bank are combined and insured up to $250,000. This means that your traditional IRAs are added to your Roth IRAs and all other self-directed accounts to get the total.

Revocable Trust Accounts

When you set up a revocable trust account, you generally indicate that the funds will pass to named beneficiaries upon your death.

Payable-on-Death (POD) Accounts

Your POD account is insured up to $250,000 for each beneficiary. However, there are some requirements, including:

  • The account title must include a term such as:
    • payable-on-death
    • in trust for
    • as trustee for
  • Your beneficiaries must be identified by name in your bank's deposit account records.
  • You can only name "qualifying" beneficiaries. These would be your:
    • spouse
    • child
    • grandchild
    • parent
    • sibling

Others – including in-laws, cousins and charities – do not qualify.

Therefore, if you set up a POD account naming your three children as beneficiaries, each child's interest would be FDIC insured for up to $250,000, and your account could have $750,000 in potential coverage.

Living or Family Trust Accounts

Living or family trust accounts are insured up to $250,000 for each named beneficiary as long as you follow the rules:

  • The account title must include a term such as:
    • living trust
    • family trust
  • Your beneficiaries must be "qualifying" as described above

If you don't meet the requirements the amount in the trust, or any portion that does not qualify, is added to your other single accounts at the same insured bank and insured for up to $250,000.

You may be glad to learn that the coverage extends to more than one group of qualifying beneficiaries. For example, suppose you specify in your living trust that after your death your spouse is to receive an income during his or her lifetime. Then when he or she dies, your four children will get equal shares of what remains. Your account would be insured for $250,000 for each beneficiary (spouse and four children) for a total of $1.25 million.

Irrevocable Trust Accounts

The interest of each beneficiary of an irrevocable trust you establish at the same insured bank is covered up to $250,000. There are no "qualifying" beneficiary rules. But the following requirements must be met; otherwise the trust will fall into your $250,000 maximum single account classification:

  • The bank's records must disclose the existence of the trust relationship.
  • The beneficiaries and their interests must be identifiable from the bank's or the trustee's records.
  • You cannot specify conditions beneficiaries must meet, such as a child must get a college degree, to qualify for the inheritance. 
  • The trust must be valid under state law.
  • You cannot retain an interest in the trust.

Employee Benefit Plan Accounts

Employee plans that are not self-directed, for instance pension plans or profit-sharing plans, fall into this category. Each participant is insured up to $250,000 for his or her non-contingent interest.

Corporations, Partnerships, Associations and Charities

Deposits owned by a corporation, partnership, association or charity are insured up to $250,000. This amount is separate from the personal accounts of the stockholders, partners or members. However, they must be engaged in an "independent activity" other than existing for the purpose of increasing FDIC insurance coverage.

The number of stockholders, partners or members has no bearing on the total coverage. For example, a property owners' association with 50 members will only qualify for $250,000 maximum insurance, not $250,000 per  member.

How to Protect Yourself

Insured funds are available to depositors within a few days after an insured bank's closing, and no depositor has ever lost a penny of insured deposits. Nevertheless, you should take precautions.

Make sure your bank or savings association is FDIC insured. You can call 1-877-ASK-FDIC (877-275-3342) or check out the FDIC Electronic Deposit Insurance Estimator.

Also take time to review your account balances and the FDIC rules that apply. This could be especially important whenever there has been a big change in your life, for example, a death in the family, a divorce or a large deposit from your home sale. Any of those events could put some of your money over the federal limit. The FDIC offers an online calculator to help you with personal and business accounts, which are also covered by the FDIC.

The FDIC uses the insured bank's deposit account records (ledgers, signature cards, CDs) to determine deposit insurance coverage. Your statements, deposit slips, and canceled checks are not considered deposit account records. Therefore, review the appropriate records with your bank to make sure they have the correct information that will result in the highest available insurance coverage.