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When you put money in the bank, you want assurance that those funds are safe and protected in the unlikely event that the institution fails. Created in 1933 in response to the banking crisis of The Great Depression, the Federal Deposit Insurance Corporation (FDIC) insures deposits held in most U.S. banks. In the institution’s history, no insured depositor has ever lost funds held at an FDIC-insured bank or financial institution.
However, the deposit insurance coverage limits do apply. Each depositor is eligible for $250,000 in deposit coverage per account ownership type per bank.
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Qualifying account types include:
- Individual
- Joint
- Business
- Trusts
- Certain retirement accounts
Related: Skipping out on life insurance may hurt your retirement plans
FDIC insurance does not cover:
- Stocks, bonds, mutual funds and other investments
- Annuities
- Insurance policies
- Safe deposit box contents
DON'T MISS: Important banking information you need to know
• 6 Reasons to Open a Second Checking Account
• The Benefits and Risks of Joint Checking Accounts
• IRS Rules for Depositing More Than $10,000 Cash in a Bank Account
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How you can maximize your deposit insurance
Here are some of the ways to increase the FDIC insurance coverage (and deposit coverage, in general) of your cash:
Open accounts at multiple financial institutions
The easiest way to expand insurance coverage of your cash is to open an account at a different FDIC member bank for your excess funds. Every bank increases your coverage by $250,000, assuming you are just using individual accounts. And, you might also consider credit unions, which are insured by the National Credit Union Share Insurance Fund (NCUSIF) at the same limits as the FDIC.
The biggest downside is that it becomes more challenging to manage your finances as your money is spread across different financial institutions. However, again, the benefit is that more of your money is covered by deposit insurance.
Related: Surprising changes coming soon for mortgages and down payments
Open a joint account with the same bank
With a joint account, your deposits fall under a separate account ownership type, which qualifies for another $250,000 in deposit coverage. If you open a joint account at the same bank with someone else, you can have up to $250,000 in individual accounts and another $250,000 in joint accounts – for $500,000 – covered by the FDIC.
Go for a bank that offers higher coverage
Some banks advertise significantly higher levels of FDIC insurance by partnering with other banks to spread your deposits across multiple FDIC-member financial institutions. Your funds are moved automatically across these banks, as needed. This way, you interface with just one bank instead of many others.
Keep cash in a brokerage account
Brokerage accounts fall under the protection of the Securities Investor Protection Corporation (SIPC), which insures against the failure of a member brokerage firm. SIPC coverage has a limit of $500,000, which includes $250,000 in cash assets. So, if you choose to move cash into your brokerage and leave it uninvested, the SIPC offers another way to safeguard your money against institutional failure. Note that SIPC protection does not cover investment losses.
Related: Veteran fund manager sees world of pain coming for stocks
