What is the FDIC?

The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by Congress in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. Founded upon a mission to “maintain the stability of and public confidence in the nation’s financial system,” the FDIC supervises certain banks, insures deposits and helps maintain a stable and sound banking system. Since the inception of the FDIC, no depositor has lost a single cent of insured funds.

The FDIC receives no Congressional funding, but is supported by premiums that banks and thrift institutions pay for deposit insurance coverage, as well as earnings on investments in U.S. Treasury securities. Today, the FDIC insures more than $3 trillion in deposits in virtually every bank and thrift in the country.

The standard limit on FDIC insurance is $100,000 per depositor and $250,000 for certain retirement accounts per FDIC-insured bank. This means that the combined total of your savings, checking and other deposit accounts in a single bank covered by the FDIC is insured only up to $100,000 of the total value and $250,000 for certain retirement accounts.

To help you better understand how different account ownership categories can increase FDIC coverage, I’ve provided you with an example of how one fictional couple – “Jane and John Smith” – achieve far more than the standard $100,000 limit in one financial institution. By having deposits in separate account ownership categories, the Smiths are able to have $750,000 of their total savings FDIC insured, all at one bank.

Individual Account
In order to determine the amount the FDIC insures in individual accounts, all individual accounts owned by the same person at the same institution are added together and the total is insured up to $100,000. This limitation applies to the total of an individual’s funds in checking deposits, savings deposits and certificates of deposits for which an insured bank is liable. FDIC insurance is not increased, for example, by depositing $100,000 into a savings account and $100,000 into a checking account in the same FDIC-insured bank.

In our fictional example, Jane Smith has deposits in the following individual accounts at one financial institution – “ABC Bank”:

Jane Smith’s Individual Accounts

Money Market Deposit Account $20,000
Checking Account $10,000
Certificate of Deposit $70,000
Total Deposits in Individual Accounts $100,000

Since the total of all of her individual accounts meets the standard $100,000 limitation, she has all of her deposits fully FDIC insured.

Joint Account
When an account qualifies as a joint account with the FDIC, each person’s share is added together and the total is insured up to $100,000. Separate coverage means that the insurance provided for a joint account is in addition to coverage provided for one co-owner’s individual account held in the same institution. However, no person can be covered for more than $100,000 in his/her interests in all joint accounts at an institution.

In our example, Jane and John Smith share the following bank accounts at ABC bank:

Jane and John Smith’s Joint Accounts

Money Market Deposit Account $50,000
Checking Account $10,000
Certificate of Deposit $120,000

Total Deposit $180,000

Since these funds are in joint accounts and qualify for separate coverage, Jane and John are each covered by the $100,000 individual limit, and their deposits are therefore fully FDIC insured.

Total Fully FDIC Insured $180,000 ($90,000 each)

In addition, Jane also shares a joint bank account at ABC bank with her sister Joan:

Jane and Joan Smith’s Joint Account
Jane & Joan’s Certificate of Deposit Account $20,000 ($10,000 per owner)

Jane is fully FDIC insured for her share of the CD account with Joan because she still has $10,000 of FDIC coverage available in the joint account category.

Since Joan has no other joint accounts, she is fully covered for her share of the account, or $10,000 – and still has $90,000 available for future joint account deposits.

Testamentary Account
Testamentary accounts provide separate coverage for payable-on-death and other revocable trust accounts. A depositor can hold in a testamentary account funds that are insured up to $100,000 for each parent, sibling, spouse, child or grandchild named as a beneficiary. The person who has the power of revoking the trust is considered the “owner” of the account.

In our example, Jane and John Smith have two children. Jane has the following revocable trust account, naming her two children and husband as beneficiaries:

Jane Smith’s Testamentary Account

Jane Smith CD in trust for John Smith and two children $300,000 ($100,000 each beneficiary)

In this case, each beneficiary is entitled to $100,000 of FDIC coverage, so the total of Jane Smith’s testamentary account is fully insured.

Total Fully FDIC Insured $300,000

Retirement Account
Retirement accounts are treated much the same way as individual accounts. All of the self-directed retirement accounts at the same insured bank are added together and the total is insured up to $250,000. Please note that unlike testamentary accounts, naming beneficiaries does not increase FDIC coverage.

Jane Smith also has a $250,000 IRA CD at ABC Bank:

Jane Smith’s IRA CD Account $250,000
Total Fully FDIC Insured $250,000

Jane Smith Account Summary
By utilizing separate account ownership categories for their deposits, the Smiths are able to have nearly all of their funds FDIC insured at one financial institution. In fact, the total amount that is FDIC insured is $750,000 – a substantial increase from the commonly held belief that the maximum amount that can be covered by the FDIC at one financial institution is $100,000.

Jane Smith’s Total FDIC Coverage

Jane Smith Individual Account $100,000
Jane and John Smith Joint Account (50%) $90,000
Jane and Joan Smith Joint Account $10,000
Jane Smith Testamentary Account $300,000
Jane Smith IRA CD Account $250,000

Jane Smith Total FDIC Coverage at ABC Bank $750,000