With bank failures making the news headlines recently, you might be wondering what it means exactly to be FDIC insured. Simply put, FDIC coverage protects your funds in the event that your FDIC-insured bank fails. But there are some important considerations to keep in mind with FDIC insurance – namely, how much of your bank deposits are protected.
Let’s take a look at some common questions depositors have about FDIC insurance:
- What exactly is FDIC coverage?
The FDIC, or Federal Deposit Insurance Corporation, is an agency established by Congress to protect bank deposits up to a certain amount in order to instill public confidence in America’s banking system. FDIC insurance is automatically applied to deposits at FDIC-insured banks, and covers up to $250,000 per depositor, per account ownership category, at each insured bank. FDIC insurance is backed by the full faith and credit of the U.S. government.
To verify whether your bank is FDIC-insured, you can use the FDIC’s BankFind Suite tool. This tool allows you to search for a bank by name, FDIC certificate number, or web address. Keep in mind though, that many online banks operate under trade names. Many are tied to established brick-and-mortar banks with different names. So, if you have trouble locating an online bank using BankFind Suite, you may want to reach out to the bank directly for their FDIC certificate number.
At Bank5 Connect, all deposits are protected by FDIC insurance. Our FDIC certificate number is 23286, and our FDIC insurance is under our legal name, Fall River Five Cents Savings Bank. On the Fall River Five Cents Savings Bank listing in BankFind Suite, you’ll see “Bank5 Connect” listed as a trade name.
- What does it mean for a bank to fail?
A bank failure can be caused by bankruptcy, insolvency, or systemic collapse. Bank failures are often triggered by a liquidity crisis when too many depositors try to withdraw funds at the same time. This scenario is called a "run on the bank."
After the Great Depression, the FDIC was created on June 16, 1933, to increase consumer confidence in the U.S. banking system. In the event of a bank failure, the FDIC takes over the bank's operations. They also work to notify all of the bank’s depositors regarding important information and next steps. The FDIC also typically posts detailed information on their website for each bank failure so customers of the failed bank know exactly what to expect.
- Does FDIC insurance cover every penny you have in a bank account?
Not always. FDIC insurance only covers up to $250,000 per depositor, per insured bank, per account ownership category.
Here are some examples of coverage limits at an FDIC-insured bank:
• An individual account at a bank is covered up to $250,000.
• The same individual may have another individual account at a different bank, which is also covered up to $250,000.
• An individual who opens more than one individual account at one bank, even at different branches of that same bank, is limited to $250,000 in total across all of their individual accounts at that bank.
• A joint account is covered up to $250,000 per co-owner, so if there are two account co-owners, the account can be insured up to $500,000.
• The limits for revocable trust accounts are $250,000 per owner, per unique beneficiary. For three beneficiaries, each one would have a limit of $250,000 for a total of $750,000.
• A husband and wife may have separate individual accounts plus a joint account. This structure would provide up to a $250,000 limit for each individual account ($250,000 x 2 = $500,000) plus $250,000 for each co-owner of the joint account ($250,000 x 2 = $500,000) for a total of $1,000,000 ($500,000 + $500,000 = $1,000,000). This is because single accounts and joint accounts are considered separate account ownership categories.
- What about my uninsured deposits?
Certain banks, such as Bank5 Connect, offer supplemental protection for deposited funds. At Bank5 Connect, additional insurance is automatically offered through the Depositors Insurance Fund (also known as DIF) and covers all funds in excess of FDIC limits. So, at Bank5 Connect, every penny of your deposits is insured against bank failure.
- Are investment accounts covered by the FDIC?
No, the FDIC does not cover investment products. Financial products that are not FDIC-insured include annuities, bonds, life insurance policies, mutual funds, and stocks. If any financial institution offers these products, disclosure documents must clearly state that those funds are not FDIC-insured.
- Does FDIC insurance cover losses from theft or fraud?
No. FDIC insurance only covers losses due to bank failure. So, if an unauthorized party gains access to your bank account and conducts transactions without your consent, FDIC insurance would not apply. That said, there are laws in place to protect consumers from unauthorized debit card charges. Other types of unauthorized banking transactions, including unauthorized transfers, should be reported to your bank immediately so they can be formally investigated.
No one wants to hear that their banking institution is going under, but all depositors at FDIC-insured banks should rest easy knowing that their funds are protected up to $250,000 per depositor, per bank, per account ownership category. And, if you’re looking for even more peace of mind, or if you’re looking to insure deposits above the FDIC coverage limit, remember that Bank5 Connect offers 100% protection on every penny of customer deposits.