What is the FDIC and what are its insurance limits?

Q: What is the FDIC and what are its insurance limits?

A: The Federal Deposit Insurance Corp. (FDIC) was created in 1933 in response to many bank failures during the Great Depression. Its goal is to preserve and promote confidence in the financial system by insuring bank deposits. Because insured deposits are backed by the full faith and credit of the
U.S. government, investors can feel secure that their deposits are safe even if the bank were to fail. Insured products include money markets, checking and savings accounts, and CDs.

In general, deposits are insured up to $250,000 per depositor, per insured bank. What is lessor known is this insurance is further applied to separate account types. This allows depositors to potentially have considerably more than $250,000 at one institution while being fully insured. The FDIC currently has eight separately insured ownership categories:


Source: https://www.fdic.gov/deposit/deposits/brochures/deposit_insurance_at_a_glance-english.html

As an example, a husband and wife could each have an individual account and an IRA at an FDIC-insured bank. Because each account falls into a separate ownership category, the deposits would be insured up to $250,000 per account for a combined total of $1 million. The couple could also have a joint account with an additional $500,000 in FDIC coverage. Deposits in trust accounts could further add to the insured amount.

Because there is the potential for large losses of principle in the event of a bank failure, we do not advise exceeding the FDIC limit on deposits. Because of the heightened risks, our client accounts are monitored for FDIC compliance on a daily basis.

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