FAQ about bank safety and deposit insurance

One of the most common questions Bankrate’s experts have been asked since the coronavirus pandemic upended the economy is: How do I keep my money safe? Many of the questions have been related to FDIC insurance and how to make sure you won’t lose your savings if a bank fails.

We put together this FAQ for bank safety and deposit insurance to help you ensure your money is safe and give you steps to take in case your money is at risk. If you have more questions, Bankrate has the answers. Here are the instructions for how to ask our experts a question.

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How much does FDIC insurance cover?

The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC bank, per ownership category. So each depositor is insured to at least $250,000 per FDIC-insured bank.

Is that $250K for one bank or one account?

At each FDIC-insured bank where you have deposits, your money, up to $250,000, is protected. For example, if you have $250,000 in deposits at Bank A and $250,000 in deposits at Bank B, you are covered for $500,000.

You can also have several accounts at one bank and be covered. A depositor’s combined balance on checking, savings and other traditional deposit accounts is insured up to $250,000. If your deposits are held in different ownership categories at the same bank (such as single accounts, joint accounts, irrevocable trust accounts and revocable trust accounts), they are separately insured.

Use the FDIC’s Electronic Deposit Insurance Estimator (EDIE) to confirm your money is insured. Also, use FDIC’s BankFind to help you confirm your bank is FDIC insured. The BankFind tool also might help you realize if multiple banks use the same FDIC certificate. If you have your money at banks that use the same FDIC certificate, you might not have as much insurance as you thought you had.

You should contact your bank and call the FDIC if you have any additional coverage questions.

I’ve deposited $250K. Is the yield earned on that insured?

The FDIC insurance limit of $250,000 includes principal and interest. If you deposit $250,000 and it earns $4,000 in interest, you are insured for only $250,000 if your bank fails. If you deposit $245,000 and accrue $5,000 in interest, you are insured for the principal plus all your interest because it does not exceed the $250,000 FDIC insurance limit. Some deposits that exceed $250,000, such as ones tied to trusts, may be eligible for more coverage. In that case, the FDIC would review the accounts and make a determination.

Does insurance cover savings, CDs and money market accounts?

FDIC insurance covers traditional bank deposit products, including checking and savings accounts, time deposits such as certificates of deposit, money market deposit accounts, Negotiable Order of Withdrawal accounts (NOW), as well as cashier’s checks, money orders and other official items issued by banks.

It does not cover investment products, such as mutual funds, stocks, bonds and annuities, even if you bought them at an FDIC-insured bank. Nor does it cover the contents of safe-deposit boxes.

What about money market funds?

Money market funds, or money market mutual funds, are not FDIC-insured, even when you buy them from a bank.

Money market accounts, on the other hand, are traditional deposit products that are federally insured as long as they are deposited at an FDIC-insured institution. They are subject to the $250,000 insurance limit.

Are online banks insured?

Just because a financial institution lacks physical offices or branches does not mean it is without insurance. There are plenty of online banks that are insured by the FDIC. And online banks often pay depositors higher interest rates on CDs and savings accounts because they have less overhead than brick-and-mortar banks.

Before working with an online bank, make sure it is a legitimate bank and not a fictitious website. Call the FDIC at (877) 275-3342 and ask to speak to a deposit insurance specialist to confirm whether an online bank is FDIC-insured.

FDIC insurance protects deposits at failed banks — not deposits lost due to online theft or fraud.

Are credit unions insured?

Credit unions are insured by the National Credit Union Administration Share Insurance Fund. The National Credit Union Administration administers the fund, which insures member deposits up to $250,000. The fund is backed by the full faith and credit of the United States. The Share Insurance Fund also separately protects IRA and Keogh retirement accounts up to $250,000 each, and separately insures revocable and irrevocable trust accounts.

The NCUA states on its website that credit union members have never lost a cent of insured savings at a federally insured credit union. As of Dec. 31, 2019, there were 5,236 federally insured credit unions in the U.S.

What if my bank fails?

If your bank fails, you do not need to file a claim with the FDIC to recover your deposited funds. The FDIC will act quickly to make you whole by either setting you up with a new account at another insured bank that is equal to the insured balance at the failed bank; or, it will issue you a check for your insured balance at the failed bank.

Some deposits that exceed $250,000 may be eligible for coverage, such as deposits linked to trusts or deposits set up by a third-party broker. In those cases, the FDIC reviews the accounts and makes a determination of the amount of deposit insurance available to them.

When banks fail, the FDIC becomes the receiver of the bank’s assets and is responsible for collecting and selling those assets in order to settle the bank’s debts, including claims for deposits that exceed $250,000. It can take years to sell off the assets of a failed bank. As assets are sold, the FDIC will make periodic payments to depositors for their uninsured funds.

How to check a bank or credit union’s financial health

You can use the FDIC’s BankFind tool to gather information about an FDIC-insured bank, including detailed financial information, its operating status and how to contact a bank regulator for information or assistance. The FDIC also publishes a list of failed banks.

To find out whether a bank is FDIC-insured, look for the FDIC sign at your bank, ask a bank representative or call the FDIC at (877) 275-3342.

To find out about the financial performance of a federally insured credit union, use the NCUA’s Research a Credit Union tool. The NCUA also publishes a list of failed credit unions or ones that have been placed into conservatorships.

Why was the FDIC created?

The Federal Deposit Insurance Corp. was established during the throes of the Great Depression, when President Franklin D. Roosevelt signed the Banking Act of 1933. On Jan. 1, 1934, the FDIC began insuring bank deposits up to $2,500. Panicked bank customers, fearing they would never see their money again, had withdrawn their deposits and impaired the banking system.

Roosevelt and some of his advisers had opposed creating the FDIC. They thought it would be too expensive and would unfairly prop up poorly run banks. But Americans wanted protection, and they got it. The deposit insurance stabilized the banking system and helped to restore public confidence in the banking system.

Ever since, the FDIC has been a safety net for depositors. The FDIC insures deposits at failed banks. It is funded by insurance premiums paid by financial institutions and investment earnings. Payouts come from the FDIC’s Deposit Insurance Fund. As of Dec. 31, 2019, there were 5,177 institutions insured by the FDIC.

Featured image by George Rose of Getty Images.