FDIC Insurance Overview

FDIC covers deposit accounts, dollar for dollar, including principal and any accrued interest, up to the insurance limit. FDIC is funded by premiums paid by financial institutions and in 2007 had $51 billion covering $3 trillion of insured deposits. Historically, insured funds are available to depositors within days after the closing of an insured bank. Since the start of the FDIC in 1934, no depositor has ever lost a penny of insured deposits.

The FDIC web site is www.fdic.gov

( Click the links below to jump to the different sections on this webpage. )

What Does FDIC Cover?

Types of  Bank Accounts

What if the Bank Fails?

How Safe is Your Money?

How Strong is the Bank?


Safe Money Places Consumer Survey

What Does FDIC Cover?

Let’s begin by saying what FDIC does not cover. FDIC does not cover money placed in stocks, bonds, mutual funds, life insurance, annuities, U.S. Treasury obligations, or uninsured bank deposits. FDIC does cover up to $250,000 in deposits for one owner at one insured bank, but there are different categories of owners that may allow one to increase coverage.

Permanent Increase In FDIC Coverage to $250,000

The Dodd-Frank Wall Street Reform and Consumer Protection Act signed by the President 21 July 2010, raised the standard maximum deposit insurance amount to $250,000. This makes permanent the temporary increase that was to expire 31 December 2013. The FDIC insurance coverage limit applies per depositor, per insured depository institution for each account ownership category. This means if the combined checking, savings, money market accounts and CDs for a single owner at one bank total $250,000 or less all deposits are insured; joint accounts would be covered for up to $500,000 (IRAs were already protected up to $250,000). The FDIC coverage is per bank, meaning if one owner has $250,000 deposited at ten different banks all deposits would be covered. Naturally, people should talk to their banker to ensure they are fully insured in their own situation.

Single Accounts

Accounts owned by one person and titled only in that person’s name are single accounts. If Jack has a checking account, savings account and a CD at the same bank titled only in his name, all of these accounts are added together and insured up to $250,000.

  • What if Jack had $100,000 in his checking account and another $200,000 in CDs at the bank?
    Assuming both accounts were owned and titled by only Jack, $50,000 of the total would be uninsured deposits because the total ($300,000) is $50,000 over the $250,000 FDIC insurance limit.
  • What if Jack had $100,000 in his checking account at one bank and $200,000 in CDs at another bank?
    Both accounts are covered because FDIC provides $250,000 of coverage for each bank.
  • What if Jack had $100,000 in his checking account and another $200,000 in his IRA at the bank?
    Both accounts are covered because Self-Directed Retirement Accounts (IRAs and SEPs) are treated as separate titled accounts and FDIC provides $250,000 of coverage for Jack's checking account and $250,000 for Jack's IRA.
  • What if Jack had $100,000 in an old IRA and another $100,000 in a SEP at the same bank?
    It appears both would be covered because both are IRAs and the total is less than $250,000.

Joint Accounts

Each person’s share of each joint account, with the same or different co-owners at the same insured bank, is added together and the total is insured up to $250,000. If Jack and Carol had $200,000 in their joint checking account and $200,000 in joint owned and titled CDs, all at one bank, all $400,000 would be insured because the total of their individual shares was not greater then $500,000.

Revocable Trust Accounts

There can either be payable-on-death (POD) accounts or estate planning trusts (living trust, family trusts) whereby, if certain conditions are met, the accounts are insured up to $100,000 for each owner for each qualifying beneficiary. Qualifying beneficiaries are the owner’s spouse and (either natural or adopted or step) child, grandchild, parent, sibling.

Note: There are different ways to maximize FDIC coverage and the place to ask questions is at the bank. This summary is only for educational purposes and is not intended as legal advice.

Insuring More Than $250,000

FDIC coverage is limited to $250,000 at each bank per named single nonqualified account. So, typically an individual with $1 million in CDs would either need to go insurance-naked on $750,000 or open accounts at four different banks. But now ONE bank account can provide FDIC coverage on the whole million if the bank uses CDARS.

Who is CDARS?

The Certificate of Deposit Account Registry Service, or CDARS, uses a network of banks across the country to provide the additional FDIC coverage needed.

But all of this is done behind the curtain. What the depositor sees is one account at their bank with one account number and the depositor gets one Form 1099-INT for interest at tax time. Using CDARS as much as $50 million can be covered.

The program is managed by Promontory Interfinancial Network, LLC. [1515 North Courthouse Road, Suite 800, Arlington, VA 22201, 866-776-6426]. Although they have only been around a few years they boast a heavyweight board and management team that includes as their CEO former Comptroller of the Currency Eugene Ludwig.

How does it work?

The way it works is every dollar over the $250,000 coverage limit is placed in another bank and that bank deposits an equal amount of money in the first bank. So, if a consumer had $300,000 the first bank might retain $240,000 (to keep under the $250,000 limit after earning next year's interest) and put the remaining $60,000 in the second bank. Since the consumer now has less than $250,000 at each bank the entire $300,000 is FDIC insured. The second bank would then deposit $60,000 from a different customer's account back to the first bank to balance up the books. If the consumer had $600,000 three banks would be used, and that individual with $1 million would have their money on deposit at five different banks.

What's the catch?

The catch is the bank will take a little more off the yield paid to the consumer to cover the extra costs of the CDARS program. However, because of the national network of over 600 banks used the consumer could still wind up earning more with CDARS than if they left all the money in their local bank.

Another point is CDARS network banks tend to be small or medium sized financial institutions, the vast majority of the banks are not affiliated. But it might get your banker's attention if you threaten to withdraw your "mega CD" unless they provide CDARS.

CDARS had been endorsed by American Bankers Association. More information is available at their web site www.cdars.com

If the Bank Fails

The bank customer will usually find out their bank failed when they get a letter stating that another bank has taken over the accounts. FDIC does not give advance notice to the public when a financial institution is closed. If all of the accounts are fully FDIC insured the bank customer loses nothing and access to all money is usually immediate. If you have uninsured deposits, life is more difficult.

When a bank fails and FDIC is appointed as receiver, FDIC will sell the institution’s assets to pay depositors and creditors. If any excess cash is generated – after the administrative expenses of the FDIC receiver are taken care of – then the receiver may declare and distribute a dividend to claimants. First in line to claim any money are the remaining uninsured deposits, followed by institution liabilities, subordinated obligations, and then obligations to shareholders.

When Do Uninsured Depositors Get Paid?

Uninsured depositors may get a special Advance Dividend usually within 30 days after the bank closes. Every quarter FDIC, as the receiver, will determine the net proceeds available from converting failed bank assets and, if money’s available, pay out a Traditional Dividend until all the money’s gone.

Could you be more specific?

The remaining eighteen banks that went under had returned, by the spring of 2005, anywhere between 30% and 98% of uninsured deposits, but they are still in receivership and could return more (but it could take years).

List Of Banks In Receivership

Failed Bank

Date Closed

Total Uninsured Deposits Repaid

Bank of Sierra Blanca

18 January 2002


Sinclair National Bank

7 September 2001


The Malta National Bank

3 May 2001


First Alliance Bank & Trust

2 February 2001


Have Uninsured Depositors Always Received All Their Money Back?

No. For example, from 2001 through 2004 22 banks were taken over by FDIC and four of these banks failed to return 100 cents on the dollar on uninsured accounts when the final dividend was paid.

How Safe is Your Money?

There are thousands of FDIC insured financial institutions out there. In 70 years no depositor has ever lost a penny of insured deposits. In our opinion the credit risk of an FDIC insured account is for all practical purposes the same as that of a direct U.S. government obligation.

Although some banks fail 99% of them do not.

If one is over the insurance limit, there are ways to change ownership to increase FDIC account coverage. An FDIC insured bank account is a safe money place. If you have uninsured deposits the risk of losing them due to a bank failure are very slim. A few banks fail every year, but 99% of them do not. However, if you have uninsured deposits it would probably be a good idea to find out what the private rating agencies are saying about your bank.

How Strong is the Bank?

Although FDIC does evaluate the financial strength of the banks they are insuring, the FDIC never releases its ratings on the safety and soundness of banks and thrift institutions to the public. However, there are several private services that do provide a letter or number grade designed to rate institutional financial strength.

  • BauerFinancial, Inc. www.bauerfinancial.com 800-388-6686
    Method: Ratings are based on a 5-star scale (5-stars being the highest and 0-stars the lowest)

  • IDC Financial Publishing www.idcfp.com 800-525-5457
    Method: Rates institutions on a scale of 300 (best) to 1, based on financial statistics and ratios. IDC calculates over 35 key financial ratios and provides a one number summary rating. Reports also include one line summaries of financial statistics and ratios for each institution and peer group distributions.

  • LACE Financial Corp. www.lacefinancial.com 301-662-1011
    Method: Institutions are assigned ratings from A+ (best) to E, based on ratios representing liquidity, asset quality, capital, and earnings.

  • Veribanc www.veribanc.com 800-837-4226
    Method: Ratings consist of a green, yellow, or red code and three (high) to zero stars. Blue Ribbon represents a special commendation for excellence. Ratings are based on actuarial studies of bank failures and is not a peer group comparisons.