Is My Money Safe in a Bank During a Recession?

During times of economic uncertainty, such as a recession, concerns about the safety of money held in financial institutions often arise. Robust protection systems are in place to safeguard funds. Understanding how these systems work can provide reassurance and clarity regarding the security of deposits, even in the event of a financial institution’s failure.

Understanding Deposit Insurance

Federal deposit insurance plays a role in maintaining stability within the United States financial system. The Federal Deposit Insurance Corporation (FDIC) is an independent federal agency established to insure deposits and promote confidence in the banking sector.

The FDIC operates by collecting insurance premiums from its member banks, rather than relying on taxpayer money. These premiums are accumulated in the Deposit Insurance Fund (DIF), which is used to cover depositor claims if a bank fails. The amount each bank pays in premiums is determined by its insured deposits and an assessment of its risk profile. This funding mechanism ensures that the FDIC has the resources to fulfill its mission of protecting depositors and resolving failed banks.

Coverage Details for Your Accounts

The FDIC provides standard insurance coverage of up to $250,000 per depositor, per insured bank, for each ownership category. This coverage includes both the principal amount deposited and any accrued interest through the date of the bank’s closing.

Ownership categories are distinct legal ways in which accounts can be held, allowing for expanded coverage. For instance, a joint account with two owners can be insured for up to $500,000, as each co-owner receives $250,000 in coverage. Common categories include:
Single accounts
Joint accounts
Certain retirement accounts like Individual Retirement Accounts (IRAs)
Revocable trust accounts
Employee benefit plan accounts

FDIC insurance covers traditional deposit products, such as checking accounts, savings accounts, money market deposit accounts, and Certificates of Deposit (CDs). However, it does not cover investment products, even if they are purchased through an FDIC-insured bank. Items not covered include:
Stocks
Bonds
Mutual funds
Annuities
Life insurance policies
Contents of safe deposit boxes
Crypto assets

Protecting Funds Exceeding Standard Coverage

Individuals with combined deposits exceeding the standard $250,000 insurance limit at a single institution have strategies to ensure full protection. One approach is to distribute funds across multiple FDIC-insured banks. Each separate bank provides its own $250,000 coverage limit, multiplying the overall insured amount.

Another strategy involves utilizing different ownership categories within the same bank. By structuring accounts under distinct legal ownerships, such as a single account, a joint account, and a retirement account, an individual can secure more than $250,000 in coverage at one institution. Some financial services offer cash management accounts that automatically spread large deposits across a network of banks, maximizing FDIC coverage while maintaining a single primary relationship.

Credit Union Account Protection

Credit unions offer a similar level of deposit protection for their members through the National Credit Union Administration (NCUA). The NCUA is an independent federal agency that administers the National Credit Union Share Insurance Fund (NCUSIF). Like the FDIC, the NCUSIF is backed by the full faith and credit of the United States government.

The NCUA provides the same standard coverage limit of $250,000 per depositor, per insured credit union, for each ownership category. This coverage applies to common account types like share savings accounts, share draft (checking) accounts, money market accounts, and share certificates (CDs). While credit unions operate differently from traditional banks, their members benefit from an equivalent federal insurance guarantee.