‘Very important for your cash.’ Here’s what accounts are, and are not, insured by the FDIC

Depositors at Silicon Valley Bank watched this week as their bank’s market value plummeted more than 60%, and it was later shuttered by regulators. Meanwhile, regional bank stocks from the likes of KeyCorp, Truist Financial, Fifth Third Bancorp, and Citizens Financial Group also tumbled. President Biden assured account holders and business owners in a statement that they were shielded. “All customers who had deposits in these banks can rest assured … they’ll be protected and they’ll have access to their money as of today.” But what happens if your bank shuts down? Are you protected?

By now, it’s widely known that the Federal Deposit Insurance Corporation (FDIC) insures many bank accounts with balances of up to $250,000 (full details below). And with the average bank account sitting at around $41,600, according to Bankrate, it’s safe to say many Americans are covered in the event of a bank failure. “FDIC protection is very important for your cash,” says Nicholas Bunio, a certified financial planner with Retirement Wealth Advisors, adding that “principal protection is key in order to pay your bills. You want confidence knowing you can get to this money quickly when needed.”

What’s insured by the FDIC? 

When it comes to banks insured by the FDIC, depositors with certain types of accounts are covered “dollar-for-dollar, including principal and any accrued interest, through the date of the insured bank’s closing, up to the insurance limit,” according to the FDIC. The FDIC adds that “the standard deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.”

For instance, if one depositor had multiple accounts with one FDIC-insured institution totaling $275,000, and that bank were to go the way of SVB, the government would cover all of that amount aside from the excess $25,000. (Note that deposits up to $250,000 are protected at credit unions by the NCUA (see details here)).

So what types of accounts are protected? Here’s what the FDIC lists as insurable accounts (it should be said that banks must fill out the proper application forms to become FDIC insured for this protection): 

• Checking accounts

• Negotiable Order of Withdrawal (NOW) accounts

• Savings accounts

• Money market deposit accounts (MMDA)

• Time deposits such as certificates of deposit (CDs)

• Cashier’s checks, money orders, and other official items issued by a bank

In addition, there is also coverage for what’s known as “ownership categories,” which include some retirement accounts and benefit plans: 

• Single accounts

• Certain retirement accounts – IRAs, self-directed defined contribution plans — self-directed 401(k) plans, self-directed SIMPLE IRA plans held in the form of a 401(k) plan and self-directed defined contribution profit-sharing plans — self-directed Keogh plan accounts, and section 457 deferred compensation plan accounts

• Joint accounts

• Revocable trust accounts

• Irrevocable trust accounts

• Employee benefit plan accounts

• Corporation/partnership/unincorporated association accounts

• Government accounts

What isn’t insured by the FDIC? 

While the FDIC does insure quite a bit, there are many investments that are not protected. Here’s what is not insured: 

• Stock investments

• Bond investments

• Mutual funds

• Crypto Assets

• Life insurance policies

• Annuities

• Municipal securities

• Safe deposit boxes or their contents

• Treasury bills, bonds or notes, which are “backed by the full faith and credit of the U.S. government,” according to the FDIC.

While stocks, bonds, mutual funds and crypto holdings (unsurprisingly), are not insured by the FDIC, those held at a broker or custodian are often still insured. When it comes to those entities, Bunio says it’s critical to make sure there is some kind of protection for your money. 

The Securities Investor Protection Corporation (SIPC), for instance, covers a broker in the event of bankruptcy and prevents money in cash or investments from being lost during the bankruptcy proceedings. “But make no mistake, these don’t protect from investment losses, but only if the broker goes bust,” says Bunio. Some private investments like real estate and private equity, he adds “might be held at companies not covered by SIPC.”

Annuities and life insurance, meanwhile, may be covered by state governments. That said, all states are different and cover different limits. Some states might be $300,000 per insurance contract, while others like Louisiana and New York, for instance, have a max aggregate benefits for all lines of insurance of up to $500,000 per person total, according to Annuity Advantage. For more on this, “it’s important to speak with your carriers and financial advisor,” Bunio says, adding that in all cases, individuals should “choose insurance companies and investment companies that are profitable, and well capitalized.”

Stable value funds, like what’s in your 401(k), are investments and “are usually backed by insurance companies,” says Bunio. “These are not FDIC insured but backed by an insurance company. Again, choose a stable insurance company.”

Can you be insured by more? 

“Even though the deposit insurance limit is $250,000, you may be able to protect much more than that without switching banks,” says Greg McBride, senior analyst at Bankrate. For example, a couple is covered by $250,000 each at one FDIC-insured bank, adding up to a total of $500,000 of protection. 

That same married couple “could shield $1 million if each were insured up to $250,000 and had a joint account that insured each account holder for $250,000 for a total of $500,000” and that were spread “among different banks,” McBride adds. 

Some banks also participate in networks known as the Certificate of Deposit Account Registry Service, or CDARS, and the Incident Command System, or ICS, which effectively expand these insurance coverage limits by spreading the liability across multiple banks. While this indeed allows for higher insurance coverage, the strategy also does this with “the convenience of dealing with just one bank,” Bunio says.