Following the recent bank collapses there’s good reason to be concerned about how much of your money is and isn’t insured. The bad news: Just because an account is held by a bank doesn’t automatically mean it’s insured. The good news: Since different types of deposit accounts are individually insured, there is a perfectly realistic way for you and your spouse to safely keep $1.5 million at the same bank. Consider talking to a financial advisor if you need help spreading your assets across different accounts and investments.
Deposit Insurance Basics
Deposit insurance exists because, even though you may have $150,000 in savings at your bank, that money doesn’t just sit in the vault. Banks retain just a portion of all deposits to service cash needs, with most of the money invested in loans and other vehicles. That works out fine because not every depositor is going to show up at the same time demanding all the money in their account, right?
That’s mostly the case. If depositors start to doubt a bank’s safety, many may try to pull their money from the bank, triggering what’s called a run on the bank. That weakens the bank’s condition, which causes more depositors to cash out and can potentially lead to the bank’s closure.
One of the functions of deposit insurance is to prevent bank runs by giving every depositor a guarantee that they’ll get their money back, up to $250,000. Any money over that amount, however, is at risk if the bank fails.
In the case of the recent failure of Silicon Valley Bank, there was a run on the bank because a large number of corporate depositors had much, much more money in their accounts. When the bank managers made bad decisions, the bank’s stock fell and all those big depositors got worried and bum-rushed the bank, prompting at least one other bank failure.
How to Keep Over $1 Million Insured at a Single Bank
Should the average depositor care? Maybe not.
As of 2019, the median account balance in the U.S. was well under the insurance limit at $5,300, according to the Federal Reserve. But what if you’ve got a lot of retirement cash deposited to cover a year or more of living expenses? Or if you have six figures in an individual retirement account invested in bank certificates of deposit?
Luckily, Federal Deposit Insurance Corporation (FDIC) covers up to $250,000 per depositor per bank per account category. In other words, you can keep well over $250,000 at a single bank and still be protected by FDIC insurance, provided the money is spread across different eight different account categories:
Single accounts owned by one person
Joint accounts owned by two or more people ($250,000 per person)
Certain retirement accounts, including IRAs ($250,000 total)
Revocable trust accounts ($250,000 per unique beneficiary)
Irrevocable trust accounts ($250,000 for the noncontingent interest of each unique beneficiary)
Corporation, partnership and unincorporated association accounts ($250,000 per entity)
Employee benefit plan accounts ($250,000 per plan participant)
Government accounts ($250,000 per official custodian)
In fact, you and your spouse can keep $1.5 million – or even more – fully insured if you structure your accounts the right way. For example, here’s how you could keep $1.5 million at one bank and have it all insured:
Individual savings or checking accounts – $500,000. Each individual depositor is insured up to $250,000, meaning you and your spouse are covered for half a million dollars in total.
Joint deposit account – $500,000. FDIC insurance also covers up to $250,000 per co-owner of a joint account. That way, you and your spouse could have separate accounts each with $250,000, plus a joint account with up to $500,00, all at the same bank.
Your IRA – $250,000: Both traditional and Roth IRAs are treated separately from regular deposit accounts. While the account itself isn’t insured (stocks and other investments aren’t covered by FDIC insurance), up to $250,000 that’s held in deposits within the retirement account is covered.
Your spouse’s IRA – $250,000: The same treatment goes for your spouse’s account but, because there’s no such thing as a joint IRA – the I stands for “individual,” after all – you need to split money going into IRAs into separate accounts.
That adds up to $1.5 million worth of protection at a single bank. But what if you’ve got more than $1.5 million? You’ll need to head over to another bank, thrift institution or credit union, and you’ll be safe. While the FDIC doesn’t cover credit unions, the National Credit Union Administration (NCUA) offers similar protections. The insurance limit applies only to your accounts at an individual depository institution, so your limit resets at each bank. Just don’t go to another branch of the same bank – that’s not a separate institution.
Individuals are insured at banks for up $250,000 in both deposit accounts and another $250,000 for deposits kept in IRAs. This allows individuals to keep up to $500,000 safely under the insurance limit, or $1.5 million for couples.
Tips For Keeping Your Money Safe
A financial advisor can help you make the right decisions to keep your money safe. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
The $250,000 limit applies per depositor, per FDIC-insured bank and per ownership category. This means that by opening different accounts, you can end up with much more than just $250,000 in insured funds. Insurance limits apply to the entire depository institution – not individual branches. A simple way to maximize your coverage is to open accounts at two different banks.
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