Maximize Your FDIC Insurance
Protecting your hard-earned savings should be a priority for everyone. There was a time when people believed simply putting it in a bank account was enough- but after recent bank failures, it has become clear that is not always the case.
FDIC-insured banks offer additional protection for certain funds in some types of accounts- but there is an upward limit. There are, however, ways to maximize your FDIC insurance without opening new accounts at different banks- and this is how.
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FDIC stands for Federal Deposit Insurance Corporation. It is an independent federal agency that works with some banks to insure their clients’ money in case of a collapse.
With FDIC coverage, funds are insured up to $250,000 per depositor, per banking institution, and per account ownership category. That means that each person who opens a relevant account at an FDIC member bank automatically has cover up to a quarter of a million dollars- but anything over that is not protected.
How Does FDIC Insurance Work?
If you open accounts at an FDIC-insured bank, the insured is immediately applied. You do not need to apply for it and do anything to qualify other than choose a bank that works with FDIC. There are roughly 4500 member banks currently offering FDIC coverage.
In the event of that bank collapsing, FDIC insurance pays back lost funds up to $250,000 for every covered account and depositor.
What Types of Accounts Does It Apply To?
Depending on the bank you work with, the following types of accounts are covered by FDIC insurance. Here are some of the examples of accounts you can open with FDIC coverage.
Checking Accounts
Standard single-owner checking accounts for everyday use and withdrawal are covered by FDIC. In most cases, these types of accounts rarely exceed the $250,000 limit, since they are frequently used and don’t offer particularly high interest rates for saving.
Savings Accounts
Your savings account is also covered up to a quarter-mil- but that may not be enough if you have substantial funds. If you have a joint savings account, this is also likely to be covered- with a higher limit because there are multiple owners.
Retirement Accounts
Certain retirement accounts offer FDIC insurance- as long as they are held with a member bank. Traditional IRAs and Roth IRAs are included- as well as CD savings accounts. However, an IRA held through mutual funds or exchange-traded funds is not included.
Money Market Deposit Accounts
Money market accounts are high-interest savings accounts that let people grow their savings quickly- and they are covered by FDIC insurance up to $250,000.
Demand Deposit Accounts
A demand deposit account works on the same principle as a checking account- in that you can deposit and withdraw funds whenever you want using your debit card. Again, they are covered up to the FDIC limit for each person named on the account.
How Can You Maximize FDIC Insurance Without Opening an Account at a Different Bank?
What happens if you have more than $250,000 in an account? In most cases, anything over the limit is not insured- and if something were to happen, the excess would be lost. Some people open accounts with several FDIC-insured bank members to spread money for maximum coverage- but what if you want to increase the coverage at one bank?
Luckily, there are a few ways to do this. If you have several accounts with different banking institutions, you can take these steps at each one- making the most of the protection offered by the FDIC.
Add a Second Person to the Account
In single accounts, the FDIC insurance coverage limit is $250,000- but in a joint account, the limit is $500,000. The rules state that coverage is limited to $250,000 per depositor, so the limit increases if there are two or more owners on a joint account.
Most types of accounts allow joint ownership of two or more people- either between spouses, partners, or parents and their children. It not only makes it easier for multiple people to access the money- it also reduces account fees and increases the FDIC coverage.
Open Accounts in Different Ownership Categories at the Same Bank
The FDIC limits apply to individual ownership categories- meaning different types of accounts. That means that one person who owns- for example- a checking account, a savings account, and an IRA at the same bank can technically secure insurance for $750,000 spread across the different accounts.
If you only have one account at your current bank, consider opening more in different ownership categories to increase your coverage. Just be sure to manage the savings to keep the funds spread as evenly as possible to avoid exceeding the limit on one account.
Remember, FDIC insurance applies to many accounts- including money market accounts, deposit accounts, Roth IRAs, and simple savers to name a few. Some trust accounts are also covered. Speak with your bank and financial advisor about what options are available to you at your branch.
Open a MaxSafe Account
A MaxSafe account is a type of savings plan opened through a company called Wintrust. It is designed specifically for maximizing FDIC insurance- offering coverage for up to $3.75 million per person.
This works through Winsafe distributing funds through dozens of community bank charters- but all you need to do is open one account- and let them do the rest. There are different types of MaxSafe accounts depending on your financial needs and goals, but the idea is the same.
Get an Account that Offers FDIC and DIF
FDIC insurance is the leading example of a coverage organization for savings- but it is not the only one. The DIF (Depositors Insurance Fund) is a private fund- unlike FDIC, which is federal- that covers certain accounts with no upward limit.
If your bank works with FDIC and DIF, you can combine the two to maximize the coverage. There are around 70 banks covered by DIF, so it is important to look for what ones work for you.
Summary
An FDIC-insured bank offers standard coverage for funds up to $250,000- but there are several ways to increase the amount if your money exceeds that figure. Although opening accounts with several banks is a simple way to increase your coverage, you can also take steps to reach the maximum FDIC insurance at one bank.
The easiest ways to do this are joint accounts and having multiple accounts in different account ownership categories- since the limit is per person for each type of account.
It is worth speaking to a financial advisor for personalized advice about how to maximize FDIC insurance at one bank based on your funds and circumstances. They can tailor a plan to you- and ensure every possible route is taken.
Given the current economic uncertainty and examples of bank failure in recent times, FDIC insurance is something to take seriously- and doing what you can to cover as much as you can is highly recommended.
About Arthur Karter
Hi, I’m Arthur, and nobody wants to wake up in their 50s like me that they are in serious debt with minimal assets. This wake-up call forced me to reevaluate everything. After going through the school of Hard Knocks, I’m ready to help you by sharing the best retirement choices and how they differ from all the same-old, same-old options that financial advisors sell. These alternatives will help you build and protect your wealth.
