When you deposit money at a bank, you're giving the bank a loan. But the bank doesn't keep your cash in its vault—it lends it out and collects interest to earn money. At any given moment, the bank likely doesn't have enough cash to cover all of its deposits.
This scenario can lead to a bank run—when a bank fails because too many depositors try to withdraw their money at the same time. Following the Great Depression, the Federal Deposit Insurance Corporation (FDIC) was formed in 1933 to create and maintain confidence in the banking system.
One way the FDIC does this is by providing FDIC insurance, an automatic benefit that can protect you from losses if your bank fails. But the insurance is limited. If you have more than $250,000 at a single bank, explore the options below to make sure you don't leave money uninsured.
FDIC Insurance Limits
FDIC insurance only covers:
- Eligible financial institutions: Most banks are FDIC members and offer FDIC-insured accounts, but you may want to double-check before opening an account at a new bank. FDIC insurance never applies to accounts at credit unions, but the National Credit Union Administration's (NCUA) insurance fund offers similar coverage for federally insured credit unions.
- Eligible accounts: FDIC insurance covers deposits in checking accounts, savings accounts, money market accounts, certificates of deposit (CDs) and negotiable order of withdrawal (NOW) accounts, as well as bank-issued cashier's checks, money orders and other official items. However, it does not cover other things like investments (such as stocks and bonds), life insurance policies, annuities or the contents of safe deposit boxes—even if these products or services are offered by an FDIC-insured institution.
- Eligible amounts: FDIC insurance covers up to $250,000 per depositor, per FDIC-insured bank, per account ownership category.
If you're not sure whether your savings are fully insured, you can use the FDIC's Electronic Deposit Insurance Estimator (EDIE) to calculate your insured and uninsured deposits at different banks.
5 Ways To Get More FDIC Insurance
The $250,000 FDIC insurance limit is enough for most people, but there are times when you might have more than the limit in savings. Perhaps you have a lot of cash after selling a home, upon receiving an inheritance, while saving up for a major purchase or because you run a small business.
Strategically managing your balances and accounts can help protect you from potential losses—or temporary inaccessibility—if your bank fails. Here are five strategies to consider.
1. Open accounts at multiple banks and credit unions
The $250,000 FDIC insurance limit applies to each FDIC-insured bank separately. For example, if you have a checking account and two savings accounts at the same bank, the $250,000 limit applies to the combined balance of those accounts.
However, if you have accounts at Bank A and Bank B, you receive $250,000 in coverage per ownership category at each bank. Deposits at federally insured credit unions are protected by the NCUA's insurance fund.
Using accounts at multiple banks and credit unions can increase your insurance coverage, but it may require additional effort to open and manage them. You'll need to monitor the balances to make sure they don't cross the $250,000 threshold at each institution, and you could potentially have trouble quickly moving large amounts of money from one account to another.
2. Keep savings in different types of accounts
The FDIC insurance limit applies separately to accounts held in different ownership categories. Common ownership categories for individuals include:
- Single accounts
- Joint accounts
- Certain retirement accounts, including individual retirement accounts (IRAs)
- Trust accounts
For example, say you have individual checking and savings accounts at a bank. They're both single accounts, so the $250,000 limit applies to your combined balance. However, you could receive an additional $250,000 to cover funds in joint accounts at the bank. Similarly, an IRA at the bank will have its own separate $250,000 limit.
With eligible joint accounts, the FDIC assumes that each owner has an equal share of the money in the account. The $250,000 limit applies to your combined balance from all joint accounts at the bank, even if you jointly own the accounts with different people or entities.
Trust accounts can be insured for up to $250,000 per eligible beneficiary, with a maximum insurance limit of $1,250,000 in coverage per owner for up to five beneficiaries.
3. Use a cash management account
Some investment companies and fintechs offer cash management accounts, which combine features of bank and investment accounts. Cash management accounts may have low or no fees, offer tools like a debit card or checks, and support direct deposits and bill pay.
Although the company offering the cash management account isn't technically a bank, it partners with multiple FDIC-insured banks to safeguard your deposits. The provider automatically moves your money into FDIC-insured accounts at these partner banks.
The total FDIC coverage depends on the account, but you can find options that offer well over $1 million in FDIC insurance because your money gets split between multiple partner banks.
However, cash management accounts may offer lower interest rates than some high yield savings accounts. You also might not have access to some banking services or products, such as the ability to deposit cash or request a cashier's check.
4. Look for an account with IntraFi network services
IntraFi connects a network of banks to offer additional FDIC insurance coverage. You can open an account or CD at a participating bank, and the bank can use IntraFi's Insured Cash Sweep (ICS) and Certificate of Deposit Account Registry Service (CDARS) programs to automatically divide your money between participating FDIC-insured banks.
Unlike with cash management accounts, you'll be working directly with an FDIC-insured bank. You'll also only need to create one login, and you'll deposit and withdraw money at the bank. Your monthly statement will list how your balances are split between the network's FDIC-insured banks.
IntraFi's service locator can help you find participating banks, although many only offer accounts with these features to business customers. Banks may also limit the total coverage on their accounts, but many offer multimillion-dollar FDIC coverage.
5. Purchase brokered CDs
Certificates of deposit (CDs) are a safe and secure way to earn interest on your savings. While many people open CDs directly with a bank, you can also purchase brokered CDs through a brokerage account.
You can buy and sell brokered CDs that are issued by multiple banks, often without any prepayment penalties if you decide to sell them before maturity. All your brokered CDs can be managed from your brokerage account: You can compare the interest rates, terms and overall yield based on the CD's current price to figure out which CDs are best within a single brokerage account.
Brokered CDs are covered by FDIC insurance if the issuing bank is an FDIC-insured bank. However, your insurance limit is still tied to your relationship with the issuing bank.
For example, if you have $100,000 in savings at Bank A and you purchase $200,000 worth of brokered CDs issued by the bank, $50,000 of your deposits would be uninsured. Instead, you might want to find brokered CDs from other banks to keep all your savings covered.
What Happens if Your FDIC-Insured Bank Fails?
If your FDIC-insured bank fails, the FDIC may write you a check for your insured funds or transfer the insured amount to a new account at another FDIC-insured bank, usually within one business day. This ensures you have continuous access to your insured funds.
If have uninsured funds at the failed bank, you might not lose all your money, but repayment is not guaranteed. The FDIC becomes the receiver of the failed bank and works to sell and collect the bank's assets to settle its debts, including the amounts owed to uninsured depositors. However, recovering these funds may take months or even years, and you may only receive a portion of your uninsured deposits.
There are exceptions in extraordinary situations. For example, when Silicon Valley Bank and Signature Bank failed in 2023, the FDIC announced that depositors wouldn't lose any money, even if they had uninsured funds at either bank. These measures, however, are not typical and depend on specific circumstances.
Explore Non-FDIC-Insured Investments
FDIC insurance doesn't cover investments, such as stocks, bonds, annuities, treasuries, mutual funds or exchange-traded funds (ETFs). However, the Securities Investor Protection Corporation (SIPC) offers similar insurance for your cash and investments in eligible brokerage accounts. SIPC insurance offers up to $500,000 per type of account in protection, with a $250,000 limit for cash deposits in a brokerage account.
Unlike saving, investing always comes with risk of losing money if the value of your investments decreases—and SIPC insurance doesn't cover these types of losses. Still, investing can be important for achieving your financial goals.
There are also strategies for minimizing risk. For example, you can spread out your investments into different industries and types of assets. Diversifying your investments could decrease your overall returns, but it can also decrease your portfolio's volatility—how much it rises and falls—and your losses. Ultimately, you want your investments to align with your risk tolerance, or how much risk you're willing to take for an estimated return.
You can research and manage your investments on your own, or you can hire a financial planner or advisor to help. There are also robo-advisors that offer investment advice and management for a relatively low cost.
The Bottom Line: You Have Options
FDIC insurance has limitations. But once you know how they work, you can strategically open accounts and move your money to make sure more—or all—of your savings stays covered.
READ MORE: How Can I Build Wealth?
