Understanding FDIC insurance: What it covers and its limits

You've likely seen "Member FDIC" displayed on bank windows or heard it mentioned in commercials. While you may know that the Federal Deposit Insurance Corporation (FDIC) protects your money in case of bank failures, it's crucial to understand how it works and how to maximize your coverage — especially if you're banking with a fintech company, neobank, or have more than $250,000 saved.

What is FDIC insurance?

The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by Congress in 1933 in response to the thousands of bank failures during the Great Depression. Its primary purpose is to insure bank deposits and maintain stability in the financial system.

When an FDIC-insured bank fails, the FDIC ensures that depositors receive 100% of their insured funds. In fact, since the FDIC’s inception in 1934, no one has lost a penny of FDIC-insured funds. Here are a few key points to know about FDIC insurance:

• Banks aren't automatically FDIC-insured — they have to apply and pay monthly premiums
• The FDIC is funded by these premiums, not by your tax dollars.
• It operates as an independent agency and does not take money from Congress, despite the "federal" in its name.
• The FDIC typically insures traditional banks, while credit unions have their own insurance through the National Credit Union Administration (NCUA).
• Neobanks and newer fintech companies (like Chime and Aspiration) aren't directly FDIC-insured — they hold customer funds in FDIC-insured accounts at larger banking institutions.

Fintech companies and neobanks have found a workaround to offer FDIC insurance: They partner with larger, FDIC-insured banks to hold customer funds. But there's a catch.

Georgia Lord, certified financial planner and head of Financial Planning at Corbett Road Wealth Management, warns: “FDIC-insured banks are subject to extensive regulation and supervision, including frequent audits, examinations, and adherence to particular standards. Choosing to bank with a non-FDIC-insured corporation leaves you unprotected and could ultimately result in the loss of your assets.”

The FDIC doesn't have to step in if a non-bank fintech fails. You might face serious delays in accessing your money or, worst case, not recover all of it.

The FDIC cautions consumers about fintech companies, stating in a May 2024 warning: “You may want to be particularly careful about where you place your funds, especially money that you rely on to meet your regular day-to-day living expenses.” 

To check if your bank is FDIC-insured, look for the FDIC logo on their website or use the FDIC's BankFind tool.

What does FDIC insurance cover?

The following types of deposit accounts are eligible for FDIC insurance:

Deposit accounts covered

• Checking accounts
• Savings accounts
• Money market deposit accounts
• Certificates of deposit (CDs)
• Cashier's checks and money orders

Account ownership categories

• Single accounts
• Joint accounts
• Certain retirement accounts (like IRAs)
• Employee benefit plan accounts
• Certain trust accounts
• Corporation, partnership or unincorporated association accounts
• Government accounts

FDIC insurance limits

The FDIC insures up to $250,000 per depositor, per insured bank, per ownership category. Here’s what that means.

• Depositor: That’s you, the account holder.
• Insured bank: The FDIC-insured institution where you have your account.
• Ownership category: The type of account based on how many people own it (single, joint, etc.).

In other words, the FDIC insures up to $250,000 per single account holder, per insured bank, and per ownership category. By using these stipulations effectively, you can have much more than $250,000 of FDIC-insured savings.

For example, if you’re single and have $300,000 cash, don't put it all in one bank — even if you split it between checking and savings. If that bank fails, you could potentially lose $50,000.

Luckily, you don’t have to trust your own math skills to know your money is protected. You can calculate your coverage using the FDIC’s Electronic Deposit Insurance Estimator.

What’s not covered by FDIC insurance?

The FDIC doesn't protect everything. Here's what falls outside its umbrella:

• Stocks, bonds, mutual funds
• Life insurance policies
• Annuities
• Municipal securities
• Safe deposit boxes or their contents
• Crypto assets
• U.S. Treasury bills, bonds, or notes (note: the U.S. government backs these, not the FDIC)

How to maximize your FDIC coverage

Don’t let that $250,000 limit fool you — you can get more coverage by playing it smart. Certified financial planner Melissa Caro advises: “If you've got serious cash, spread it across multiple FDIC banks. And mix up your account types — individual, joint, trusts — to boost that coverage.”

Here are some strategies to maximize your protection:

1. Use multiple banks: Split your funds between different FDIC-insured institutions
2. Diversify account types: Combine individual, joint, and trust accounts
3. Consider account ownership: The FDIC can insure a joint account with your spouse for up to $500,000
4. Utilize business accounts: If you own a business, separate those funds from your personal accounts

Remember, each ownership category at each bank gets its own $250,000 limit. Using these rules strategically, you can protect millions of dollars if needed.

What happens if your bank fails?

Bank failures aren’t common, but they do happen. Since October 2000, The FDIC has recorded 570 bank failures, including six from the start of 2023 to September 2024, including the infamous tech lender, Silicon Valley Bank.

When an FDIC-insured bank fails, the agency steps in to return your money as quickly as possible. There are two ways they typically go about this:

• Bank sale: A healthy bank often buys the failed one, automatically gaining its customers. You can access your funds through the new bank. The FDIC helps facilitate the sale of one bank to another.
• Deposit payoff: If no one buys the failed bank, the FDIC pays the depositors directly by check, usually within a few days.

If you have more than $250,000 in a failed FDIC-insured bank, you’ll get the insured $250,000 back immediately. For the rest, you'll receive a claim against the closed bank's estate, and the FDIC will pay you as it liquidates the bank's assets.

Frequently asked questions

The bottom line

The FDIC has protected American bank customers for over 90 years, and in that time, no one has ever lost a penny of FDIC-insured funds. But remember, FDIC insurance has its limits. By understanding how it works and strategically managing your accounts, you can ensure your money is protected, even in the unlikely event of a bank failure.