Deposit insurance
What The FDIC $250,000 Limit Actually Covers
The limit is per depositor, per insured bank, per ownership category, and the third one is where people get it wrong. A married couple at a single bank can cover a million dollars.
In March 2023 a friend of mine moved $400,000 out of one bank and into four different banks over a weekend, because she had read the number $250,000 and done the only arithmetic the number seemed to allow. She did not need to open four accounts. She needed to open two.
The FDIC, the Federal Deposit Insurance Corporation, is the government agency that makes depositors whole when an insured bank fails. The coverage figure has been $250,000 for many years, and since it is a statutory number that can be changed, treat the one in this sentence as a thing to verify at fdic.gov rather than a fact you carry around.
The sentence people only half remember
Coverage is $250,000 per depositor, per insured bank, per ownership category.
Three qualifiers. Most people hold onto the first two and drop the third, and the third is the one that does the work.
An ownership category is the legal form the account takes. A single account you own alone is one category. A joint account you own with someone else is a different category.
Certain retirement accounts are a third. Revocable trust accounts are a fourth. The limit resets for each of them at the same bank, because each is treated as a separate pot of money with a separate set of owners.
How the categories stack at one insured bank
| Ownership category | What sits in it | Insured amount at that bank |
|---|---|---|
| Single accounts | Checking, savings and CDs in one person's name alone | $250,000 per owner |
| Joint accounts | Accounts with two or more owners, each with equal withdrawal rights | $250,000 per co-owner, so $500,000 for two |
| Certain retirement accounts | IRAs and some self-directed plan deposits held at the bank | $250,000 per owner |
| Revocable trust accounts | Payable-on-death and living trust deposits | Depends on the named beneficiaries, so confirm the current rule |
| Business accounts | Deposits of a corporation, partnership or unincorporated association | $250,000 for the entity, separate from the owner's personal accounts |
Structure is illustrative and the trust category rules in particular have been revised. Run your own balances through the FDIC EDIE calculator at fdic.gov before you rely on any of it.
The couple
Take two spouses at one bank. She has a single account in her name, insured to $250,000. He has a single account in his name, insured to $250,000.
They also hold a joint account, and a joint account is insured to $250,000 per co-owner, so that one covers $500,000.
$250,000 plus $250,000 plus $500,000 is $1,000,000, all of it insured, all of it at a single bank.
My friend with $400,000 could have covered it with a single account and a joint account at the bank she already used.
What is not covered
Deposit insurance covers deposits. Checking, savings, money market deposit accounts, certificates of deposit. That is the list.
It does not cover a mutual fund, a stock, a bond, an annuity, a life insurance policy or a crypto balance you bought through the bank's own app, even though all of it appears on the same screen under the same login. Safe deposit box contents are not insured either, which surprises people more than anything else on this list.
One more trap. Two brands can share a single bank charter, and coverage is per insured bank, not per brand.
If you split money between two names that turn out to be the same charter, you have doubled your login count and not your coverage. The FDIC BankFind tool at fdic.gov tells you which charter a brand belongs to.
What a failure actually looks like
The picture people carry is a queue outside a branch. What usually happens is that a healthy bank agrees to take over the failed one, generally over a weekend, and on Monday your account works with a different name on the app icon.
When no acquirer is found, the FDIC pays insured depositors directly, and it has historically done that within a few business days. Balances above the limit are a different matter. They become a claim on whatever the failed bank's assets eventually recover, which can take years and may not come back whole.
That gap is the whole reason to care about the categories. Insured money is a Monday inconvenience. Uninsured money is a legal process.
The cheapest fix is a form
Adding a payable-on-death beneficiary moves an account into the revocable trust category, and coverage there scales with the number of eligible beneficiaries named. The rules for that category have been revised, so confirm the current version rather than the one you read about a few years ago.
It costs nothing, it takes one form, and it also keeps the account out of probate. Two problems, one piece of paper.
Go add up every balance you hold at your largest bank, including the CD you forgot about and the checking account you keep for autopays. If the total is under $250,000 you are done thinking about this. If it is over, the next question is not which bank to move to, it is which ownership category you are missing.
