What If I Have More Than $250,000 in One Bank?

Many individuals accumulate savings that exceed standard deposit insurance limits at a single financial institution. Understanding how deposit insurance functions is important for protecting these funds.

Understanding FDIC Insurance

The Federal Deposit Insurance Corporation (FDIC) is an independent U.S. government agency that provides insurance coverage for deposits in member banks. This protects customers if an FDIC-insured bank fails. Insurance is automatic for any deposit account opened at an FDIC-insured bank and is backed by the full faith and credit of the U.S. government.

The standard insurance amount is $250,000 per depositor, per FDIC-insured bank, for each ownership category. All deposits a person holds in the same ownership category at the same bank are added together and insured up to this limit. FDIC insurance covers checking accounts, savings accounts, money market deposit accounts (MMDAs), certificates of deposit (CDs), and official bank items like cashier’s checks and money orders.

Conversely, the FDIC does not insure investment products, even if they are purchased from an insured bank. These uninsured products include stocks, bonds, mutual funds, annuities, and life insurance policies. Additionally, the contents of safe deposit boxes are not covered by FDIC insurance.

Strategies for Maximizing FDIC Coverage

To ensure all funds are FDIC-insured, even if deposits exceed the $250,000 limit at one bank, individuals can use different ownership categories within the same bank. The FDIC provides separate insurance coverage for deposits held in various ownership categories.

For example, a single account owned by one person is insured up to $250,000. A joint account, owned by two or more people, is insured up to $500,000 (effectively $250,000 per co-owner). Retirement accounts, such as IRAs and self-directed 401(k)s, represent another ownership category, with deposits in these accounts also insured up to $250,000 per depositor. Trust accounts can also provide expanded coverage, with specific rules depending on the type of trust and the number of beneficiaries. For instance, a revocable trust account with one owner naming three unique beneficiaries can be insured up to $750,000.

Another strategy is to spread funds across multiple FDIC-insured banks. Since the $250,000 limit applies per depositor, per institution, accounts at different banks allow for separate coverage. For instance, if you have $500,000, you could deposit $250,000 in one FDIC-insured bank and the remaining $250,000 in another, ensuring both amounts are fully insured. Different branches of the same bank are considered one institution for insurance purposes.

For substantial deposits, some banks offer specialized programs like Insured Cash Sweep (ICS) or Certificate of Deposit Account Registry Service (CDARS). These services distribute large deposits from a single customer into smaller amounts across a network of multiple FDIC-insured banks. This allows the entire deposit to remain fully insured, often reaching multi-million dollar coverage, while the customer maintains a single banking relationship. ICS places funds in demand deposit or money market accounts, while CDARS places funds into certificates of deposit.

What Happens During a Bank Failure

When an FDIC-insured bank fails, the FDIC steps in to manage the resolution. The FDIC or a state regulatory agency takes control of the institution. The primary goal is to protect insured depositors and ensure quick access to their funds.

The FDIC generally aims to return insured funds to depositors within two business days of a bank’s closing. This can happen through a direct payout by the FDIC or by transferring accounts to a healthy acquiring institution. If deposits are transferred, insured depositors automatically become customers of the acquiring bank, usually with uninterrupted access to their funds.

For funds exceeding the $250,000 insured limit per depositor, per ownership category, the outcome is less certain. These uninsured deposits become claims against the failed bank’s assets during receivership. While some recovery of uninsured funds is possible as the FDIC liquidates assets, it is not guaranteed and can take an extended period, often years. If the failed bank is acquired by another institution, even uninsured amounts might be transferred, but this is not a guaranteed outcome.