Understanding how your money is protected in banking is essential for peace of mind. When you hear the term covered accounts, it refers to deposit accounts insured by the Federal Deposit Insurance Corporation (FDIC). This insurance protects your deposits up to a legal limit of $250,000 per depositor per bank, ensuring that your funds are safe even if something unexpected happens to your bank.
What Is a Covered Account?
An FDIC-covered account is any deposit account that qualifies for insurance. The FDIC was established to protect depositors and maintain stability in the financial system, so knowing your account falls under this protection can provide reassurance.
Types of Covered Accounts in Banking
Understanding which accounts qualify as covered accounts helps you make informed decisions about where to deposit your money. Here’s a breakdown of the types of accounts that are considered covered by FDIC insurance.
Checking Accounts
Checking accounts are among the most common types of covered accounts. They allow easy access to your funds for daily transactions through debit card purchases or online transfers. Since these accounts are essential for managing everyday finances, knowing they are FDIC-insured adds security.
Savings Accounts
Savings accounts are also covered, which is ideal for storing money you don’t plan to spend immediately while earning interest. Whether you have a regular or high-yield savings account, FDIC insurance covers your balance up to $250,000, providing safety for your savings.
Money Market Deposit Accounts (MMDAs)
Money Market Deposit Accounts (MMDAs) offer a nice mix of checking and savings account features. They usually provide higher interest rates than regular savings accounts, helping your money grow faster. Plus, you can write a limited number of checks, giving you some easy access to your funds. Best of all, MMDAs are insured by the FDIC, which means your money is safe and protected.
Certificates of Deposit (CDs)
CDs offer a low-risk way to grow your savings by requiring you to leave your money in the bank for a set period. These accounts are insured, making them another type of covered account. The FDIC insurance applies to the principal and any accrued interest.
Other Covered Accounts
Along with the accounts already discussed, various other deposit options are also included under FDIC coverage. This includes Negotiable Order of Withdrawal (NOW) accounts, which blend features of checking and savings accounts, as well as cashier’s checks, ensuring your funds remain secure. Each of these financial instruments is protected under FDIC regulations.
What Is Not a Covered Account?
While many accounts are insured by the FDIC, some financial products don’t qualify for this protection. Knowing which accounts are not covered can help you make better financial choices.
Investment Products
Investment products like stocks, bonds, mutual funds, and cryptocurrencies aren’t covered by FDIC insurance. Even if you buy these products through a bank, your investment isn’t protected. For example, if you invest in a mutual fund at your bank and it loses value, you won’t get any compensation from the FDIC. This is different from a regular savings account, where your deposits are safe up to the insured limit.
Life Insurance Policies and Annuities
Life insurance policies and annuities also lack FDIC coverage. These products are regulated by state insurance rules, not federal banking regulations. While they can offer financial benefits, any money invested in them is at risk without FDIC protection.
Safe Deposit Boxes
Safe deposit boxes at banks hold your valuables and important documents, but the contents inside are not covered by FDIC insurance. If something happens to the bank, your items might not be protected. It’s wise to consider additional insurance for anything valuable you store in a safe deposit box.
Other Non-Covered Accounts
Here are some other accounts and products that are not FDIC-insured:
- Municipal Securities
- Treasury Bills, Bonds, or Notes
Understanding that only traditional deposit accounts—like checking and savings accounts—are covered by the FDIC will help you manage your finances wisely. Always think about the risks associated with non-covered products and make sure to diversify your investments.
Are There Exceptions to FDIC Not Covering a Bank Account?
Certain situations can affect FDIC coverage, leading to exceptions. Here are a few notable exceptions to consider:
Accounts in Banks That Aren’t FDIC-Insured
Not all financial institutions carry FDIC insurance. If you open an account at a bank or credit union that is not insured by the FDIC, your deposits will not have that protection. It’s crucial to verify that your chosen bank is FDIC-insured before opening an account.
Certain Types of Trust Accounts
While revocable trusts can have coverage based on the number of unique beneficiaries, irrevocable trusts may have different rules that affect insurance limits. Ensure you understand how your specific trust is structured to determine its FDIC coverage.
Employee Benefit Plans
Employee benefit plans also have distinct coverage rules. The FDIC provides insurance based on the number of participants entitled to the account. However, if the plan itself does not meet specific requirements, the funds may not be covered.
FDIC Insurance Limits and Coverage
Covered accounts are insured by the FDIC for up to $250,000 per depositor, per ownership category, and bank. If your bank fails, the FDIC will reimburse your deposits up to this amount.
Maximizing FDIC Coverage
To increase your FDIC coverage, consider spreading your deposits across different ownership categories or financial institutions. For example, a joint account with two owners can be insured for up to $500,000 since each co-owner is covered for $250,000. Certain types of retirement accounts, trusts, and business accounts also offer their own FDIC insurance coverage.
Special Accounts with Higher FDIC Limits
Some institutions offer accounts that provide more than the standard $250,000 FDIC insurance. Accounts like Wealthfront Cash spread your deposits across multiple partner banks, allowing for coverage up to $2 million or more, depending on how deposits are distributed.
Why Covered Accounts Are Important
Understanding what covered accounts are in banking ensures that your money is secure. Knowing that your deposits are protected can give you confidence in the banking system.
Peace of Mind in Financial Uncertainty
While bank failures are rare, they can happen. Recent examples, like the failures of Silicon Valley Bank, highlight the importance of FDIC insurance, as depositors were protected even when the bank collapsed.
Your Safety Net in Banking
Covered accounts provide essential protection for depositors. Whether you’re opening a checking account or investing in a CD, knowing that FDIC insurance safeguards your funds can offer stability and peace of mind. This security allows you to focus on achieving your financial goals without unnecessary worry.