What Are Uninsured Deposits and How Do They Work in Banking?

Banks hold customer deposits, but not all money is fully protected. Deposit insurance safeguards a portion of funds in case a bank fails, but any amount exceeding the insured limit is considered uninsured and carries more risk.

Understanding how uninsured deposits work is important for individuals and businesses with large account balances. If a bank experiences financial trouble, uninsured depositors could face delays or losses when recovering their money.

Deposit Insurance Thresholds

Deposit insurance limits determine how much of a depositor’s funds are protected in a bank failure. In the United States, the Federal Deposit Insurance Corporation (FDIC) insures up to $250,000 per depositor, per insured bank, for each account ownership category. If an individual has both a checking and savings account at the same bank, the combined balance is insured only up to $250,000 unless the accounts fall under different ownership categories, such as joint or trust accounts, which have separate coverage limits.

For credit unions, the National Credit Union Administration (NCUA) provides similar coverage through the National Credit Union Share Insurance Fund (NCUSIF), insuring up to $250,000 per member, per institution. These limits apply to federally insured credit unions, while state-chartered credit unions may have different protections.

Some depositors maximize coverage by spreading funds across multiple banks or structuring accounts under different ownership categories. A married couple, for example, could maintain individual accounts, a joint account, and trust accounts to increase insured coverage. Businesses must also be mindful of these thresholds, as corporate accounts are subject to the same $250,000 limit per tax identification number at a single institution.

Deposits That Are Not Eligible

Not all funds at a financial institution qualify for deposit insurance. While traditional checking and savings accounts are covered, other financial instruments do not receive the same guarantee.

Investment products such as mutual funds, stocks, and bonds are not considered deposits and therefore remain uninsured, even if purchased through a bank-affiliated brokerage. Certificates of deposit (CDs) issued directly by a bank are covered up to the insurance limit, but brokered CDs—those purchased through third parties—may not receive the same protection.

Foreign currency deposits also fall outside deposit insurance coverage. If a customer holds an account denominated in euros, yen, or another foreign currency at a U.S. bank, those funds are not insured by the FDIC. In a bank failure, the depositor could face difficulties recovering the full value of their foreign currency holdings.

Certain high-risk accounts, such as those held by cryptocurrency exchanges or fintech companies that partner with banks, may also lack direct insurance. While some fintech platforms claim to provide FDIC insurance, this protection typically applies only if funds are held in an insured bank account rather than in digital wallets or investment products. Customers should verify how their funds are stored and whether they are covered under a pass-through insurance arrangement.

Accounting for Uninsured Balances

Businesses and individuals with large cash holdings must track uninsured balances to manage liquidity risk. Since these funds are not protected by deposit insurance, they require oversight to ensure proper accounting and safeguards against potential bank failures.

For corporations, uninsured deposits are recorded as cash and cash equivalents on the balance sheet. Companies must disclose concentration risks in financial statements if a significant portion of cash is held in a single institution. Under U.S. Generally Accepted Accounting Principles (GAAP), Accounting Standards Codification (ASC) 275 requires entities to disclose vulnerabilities due to concentrations of credit risk, including uninsured bank deposits exceeding federally insured limits. Publicly traded companies often include these disclosures in their SEC filings, particularly in the risk factors section of Form 10-K.

Treasurers and financial managers mitigate exposure by diversifying cash holdings across multiple banks or using sweep accounts that transfer excess funds into insured accounts or low-risk investments. Some entities use Insured Cash Sweep (ICS) services, which distribute large deposits across a network of banks to maintain full FDIC coverage while allowing access to funds through a single institution. These strategies help reduce the risk of loss if a bank becomes insolvent.

Priority for Uninsured Deposits in Bank Resolution

When a bank fails, regulators liquidate assets and repay creditors based on a legally defined hierarchy. Uninsured depositors are classified as general unsecured creditors, meaning they are repaid only after secured claims, administrative expenses, and insured deposits have been settled. The Federal Deposit Insurance Act (FDIA) and the Orderly Liquidation Authority under the Dodd-Frank Act govern this process.

The FDIC, acting as receiver, prioritizes administrative costs and secured liabilities before distributing any remaining funds to uninsured depositors. If the bank has sufficient recoverable assets, uninsured depositors may receive partial or full repayment, but if losses are significant, they could face substantial shortfalls. Historical bank failures have shown variation in recovery rates, depending on asset quality and market conditions. During the 2008 financial crisis, some failed institutions had recovery rates for uninsured depositors exceeding 80%, while others saw far lower returns.