FDIC Insurance Limits: What You Need To Know
Not since Franklin Roosevelt signed the Federal Deposit Insurance Corporation (FDIC) into existence nearly 80 years ago has it garnered so much attention, thanks primarily to the banking crisis that swept the country in 2008. Since then, hundreds of banks have failed and hundreds remain on the government’s “watch list”. In a move to stem the loss of confidence in the banking system, the Federal Reserve overhauled the reserve system and shored up consumer protections by increasing the FDIC insurance coverage on bank deposits. Suddenly, everyone is paying attention to FDIC insurance again.
FDIC Coverage Today
The last time the Fed increased the FDIC insurance limits was 1980 when it was raised to $100,000 per insurable account. As a result of the near panic that ensued in 2008, the limit was again raised, albeit temporarily, to $250,000. The new coverage limit was made permanent as part of the passage of the financial reform bill in 2010. The new law also made the coverage retroactive to January 2010 which dates prior to the actual banking crisis. As a result, FDIC insurance is being paid out to thousands of people who could, back then, only claim $100,000 even though their accounts held more.
With the renewed attention on FDIC insurance, it would be important to revisit its coverage to make sure that everyone truly understands how it works and some of the limitations of the coverage.
What FDIC covers
The most important caveat to remember about FDIC insurance is that not all accounts are covered, and those that are may not be fully covered. Essentially, the only covered accounts are those in which the deposits actually reside within a bank that is a member of the FDIC (check for an FDIC sticker or ask). This would include checking accounts, savings accounts and certificates of deposit held in any form of ownership. Investment accounts and money market funds generally aren’t in the scope of coverage.
How Much FDIC Covers
The basic coverage limit is $250,000 per insurable account, per bank. What this means is that, if you have more than $250,000 deposited in your name, in one or more accounts with a single bank, you are probably not completely covered. If you have more than $250,000, you must take steps to maximize your FDIC coverage by spreading your money among multiple banks.
Additionally, if your accounts are held in different forms of ownership, you may be able to keep more than $250,000 safely deposited with one bank. For instance, if you have a joint account, each of the joint owners is covered up to $250,000. Or, if you have $250,000 deposited in checking and savings under your name, a separate account held in trust, or as a retirement account, could qualify for its own coverage.
While it is true that FDIC insurance is a federal program, it may be important to know that the FDIC has relatively little held in reserve to provide reimbursement should the banking industry suffer too many simultaneous failures such as occurred in 2009. What most people don’t realize is that, the FDIC is not backed by the full faith and credit of the U.S. Government. In other words, the government is not obligated to step in and provide additional funding for the FDIC.
While, the recent banking crisis has raised serious questions as to the solvency of the FDIC, it’s not likely that the government will let it go broke and leave banking customers hanging. One thing you can probably count on, however, is that, if your bank does go down, you may have to wait awhile for your claim to be paid.