6 best ways to insure excess deposits

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If you have more than $250,000 on deposit at a federally insured bank, it’s a good idea to find out whether all of your money is protected. The Federal Deposit Insurance Corp. (FDIC) insures deposits up to $250,000 per depositor, per FDIC-insured bank, per account ownership category. If your deposits exceed that limit, you could be in trouble if your bank fails.

There is $14.4 trillion in domestic deposits at FDIC-insured banks as of March 31, 2020. About $8.2 trillion of that is insured, which means $6.2 trillion is not insured. When banks fail, which is rare, customers with uninsured deposits may have to wait years to recover even a portion of their uninsured funds and there’s no guarantee that they will.

Fortunately, there are ways to federally insure deposits beyond the $250,000 FDIC limit.

1. Understand current FDIC limits

First, talk to your bank about the insurance status of your deposits and your options to protect all of your savings in-house. If you have $300,000 in CDs and other savings accounts in your name only at the same FDIC-insured bank, $50,000 is not insured. But if you have $250,000 in your personal account and $50,000 in a separately titled joint account with your spouse, you’re covered.

Basically, you have to put your money into accounts in different ownership categories — and use multiple FDIC-insured banks, if necessary — to maximize your FDIC insurance protection for deposit amounts greater than $250,000. The FDIC explains it with this interactive graphic.

You can figure out how much is insured by using the FDIC’s Electronic Deposit Insurance Estimator. The tool can be used to calculate the insurance coverage of checking accounts, savings accounts, money market deposit accounts and certificates of deposit. It is to be used only for deposit products, not investments, such as stocks and bonds.

2. Use CDARS or other networks to spread money at multiple banks

If you want to spread your money around in various CDs or money market accounts but don’t want to do the work, there are a few bank networks that will do it for you.

Perhaps the best-known is the Certificate of Deposit Account Registry Service, or CDARS. See if your financial institution is in the CDARS network. Funds exceeding $250,000 are deposited in CDs at other banks in the network. The system is supposed to ensure that the money is divided among non-related banks, but it’s smart to make certain.

If you’d rather not tie up your money in CDs, Promontory Interfinancial Network, the creator of CDARS, offers a product called Insured Cash Sweep, which covers savings and checking accounts.

Similarly, CDC Deposits Corp., a network of almost 200 FDIC-insured banks, offers protection through its program focusing on money market accounts.

There’s a huge convenience factor to having someone else spread your money around to protect it. You also receive account summaries and a 1099 form for your taxes.

Another option is the Depositors Insurance Fund, a Massachusetts-based insurer of excess deposits. Any amount above the FDIC’s coverage ceiling is guaranteed. There are no forms to fill out, and no separate titling of accounts is necessary. If you don’t live in Massachusetts, you’re not left out: Many of these banks allow out-of-state accounts.

3. Open accounts at multiple banks

Digital banking makes finding the best rates on CDs and money market accounts and opening accounts online pretty easy. If you’re willing to put in the time and are organized enough to keep tabs on your accounts, you can easily stay within the FDIC per-bank insurance limits while taking advantage of some of the best rates being offered on CDs right now. You can even consider using several banks to create a CD ladder.

4. Consider brokerage accounts

If you have more than $250,000 saved, there is a good chance you also have a brokerage account with an institution such as Fidelity or Charles Schwab. Brokerages typically offer CDs from different banks across the country as part of their product lineups and provide you the convenience of one-stop shopping.

Be aware that you’re responsible for making sure your money is divvied up among non-related banks to maximize your FDIC insurance.

5. Deposit excess funds at a credit union

The National Credit Union Administration Share Insurance Fund is the insurer of deposits at federally insured credit unions. The insurance fund is there for depositors in case a credit union fails.

Just like the FDIC, the Share Insurance Fund insures individual accounts up to $250,000. The Share Insurance Fund also separately protects IRA and Keogh retirement accounts up to $250,000 and separately insures revocable and irrevocable trust accounts.

If you’re not sure all your assets at a credit union would be covered, use the NCUA’s handy Share Insurance Estimator.

NCUA insurance is backed by the “full faith and credit” of the U.S. government, in the unlikely event the insurance fund goes dry.

Credit unions are a good option for deposits that are not FDIC-insured. You have to become a member of a credit union, but membership requirements are often pretty lenient, extending to family and friends.

6. Other ways to insure excess deposits

Wintrust Financial has a business model that works well for excess deposit coverage. The company owns 15 separately chartered community banks in the greater Chicago area and Wisconsin. It offers what it calls its MaxSafe account, by which an individual can insure as much as $3.75 million by spreading their money across Wintrust’s chartered banks.

With various account ownership titles, that dollar amount can go significantly higher. For example, a married couple and their college-age child can open separately titled MaxSafe accounts to greatly broaden their financial protection.

Wintrust has historically offered this service to locals in Chicago and Milwaukee. MaxSafe customers get account summary statements and a 1099 form, too.

Bottom line

Any individual or entity that has more than $250,000 in deposits at an FDIC-insured bank should see to it that all monies are federally insured. It’s not just diligent savers and high-net-worth individuals who might need extra FDIC coverage. Corporations, family foundations, governments and charities also use bank networks to spread their money around for added insurance protection.

Featured image by Issa Bin Saleh AlKindy of Getty Images. 

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