How Much Money Is Secured in a Bank Account?

When money is placed in a bank account in the United States, mechanisms are in place to secure these funds. These protections safeguard consumer deposits and maintain financial system stability. Understanding these safeguards provides clarity for account holders regarding their money’s security.

The Basics of Deposit Insurance

Deposit insurance is a fundamental component of the U.S. financial system, protecting account holders from the loss of their insured deposits if a bank or credit union fails. This protection is automatically provided when funds are placed in an insured institution. The primary purpose of deposit insurance is to maintain public confidence in the nation’s financial institutions and prevent widespread withdrawals, commonly known as bank runs.

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government responsible for insuring deposits at commercial banks and savings institutions. Established in 1933, the FDIC was created to restore trust in the banking system. Similarly, the National Credit Union Administration (NCUA) is an independent federal agency that insures deposits at federal credit unions through its National Credit Union Share Insurance Fund (NCUSIF). Both agencies collect insurance premiums from member institutions to protect depositors’ money.

Understanding Coverage Limits and Account Types

The standard deposit insurance coverage limit is $250,000 per depositor, per insured institution, for each account ownership category. For example, if you have a checking account and a savings account solely in your name at the same bank, the combined balance of both accounts is insured up to $250,000.

Different account ownership categories are insured separately, allowing for greater coverage at a single institution. For instance, a single account, owned by one person without named beneficiaries, is insured up to $250,000. If that same person also has a joint account with another individual at the same institution, the joint account is separately insured up to $250,000 per co-owner, meaning a joint account with two owners could be insured for up to $500,000.

Certain retirement accounts, such as Individual Retirement Accounts (IRAs) and self-directed 401(k)s, constitute a separate ownership category. All self-directed retirement accounts for the same person at the same bank are aggregated and insured up to $250,000. Revocable trust accounts, often used for estate planning, also have distinct coverage; each owner’s interest is insured up to $250,000 per unique beneficiary, with a maximum coverage of $1,250,000 per owner for trust accounts with five or more beneficiaries as of April 1, 2024. Irrevocable trust accounts have their own set of rules for coverage.

Employee benefit plan accounts, which include pension plans and defined benefit plans, receive coverage up to $250,000 per plan participant. Business accounts, held by entities such as corporations, partnerships, or Limited Liability Companies (LLCs), are insured separately from the personal accounts of the business owners, up to $250,000 per entity. Understanding these categories allows individuals and businesses to structure their deposits to maximize insurance coverage.

Deposit insurance covers money held in traditional deposit accounts. This includes checking accounts, savings accounts, money market deposit accounts (MMDAs), and certificates of deposit (CDs). Additionally, official items issued by a bank, such as cashier’s checks and money orders, are also covered.

Assets Not Covered by Deposit Insurance

While deposit insurance provides significant protection for traditional bank accounts, it does not cover all financial products or assets. Investment products, even if purchased through an insured bank, are not protected by federal deposit insurance. This includes instruments like stocks, bonds, mutual funds, annuities, and life insurance policies, which carry market risk.

The contents of safe deposit boxes are also not covered by deposit insurance, as this insurance applies only to deposits, not physical items. Cryptocurrencies and other digital assets are not covered by federal deposit insurance. Investments made through a bank’s brokerage arm are also outside the scope of deposit insurance, as they are considered investment products rather than deposits.

Verifying Your Institution’s Coverage

Confirming that your bank or credit union is federally insured is a straightforward process. Insured institutions display official signs or decals at their branches and on their websites. For banks, look for the “Member FDIC” sign, while credit unions will display the NCUA equivalent.

For digital verification, both agencies provide online tools. You can use the FDIC’s BankFind tool on their official website to search for a bank’s insured status. Similarly, the NCUA offers a “Research a Credit Union” tool to verify coverage for credit unions.