Could you imagine entering the doors of your bank with sweaty palms, wondering if your money is still there? Chances are you wouldn’t take advantage of the complimentary coffee, or sign a sheet upon walking in to speak with a representative; you’d be frantically running in, elbowing others in a crowd and trying to withdraw all of your hard earned money.
Witnessing a frenzy of people trying to get into banks and claim their money became all too common in the 1930s. Thankfully, this does not occur today as the Federal Deposit Insurance Corporation (FDIC) was brought to life by Franklin D. Roosevelt in 1933 to insure the deposits of customers.
Recession Brings Changes to FDIC Limits
Since 1980, the FDIC insurance limits on insurable bank accounts were $100,000. But when the stock market crash occurred in the fall of 2008 and 25 banks became insolvent, fears among customers and small business owners started to rise and for good reason: only 63% of deposit accounts were protected with the $100,000 limit.
The FDIC insurance coverage amount was raised temporarily in 2008 to $250,000 in order to calm fears in the wake of the largest bank failure of all time, Washington Mutual, followed by 140 other bank failures in 2009 (to date there are 100 banks on the bank failure list in 2010).
The financial reform bill, officially named the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law on July 21, 2010, made this $250,000 FDIC coverage limit permanent. The FDIC 2010 limits are retroactive to January 1, 2008, and because of this the FDIC is in the process of reimbursing money from the accounts of 9,500 people who held more than $100,000 in a single account.
FDIC Insurance Coverage
Not all types of bank accounts are insured, and not all banks carry FDIC insurance. Make sure your bank is covered by FDIC (typically there is a sticker on their door or teller window, or you can call the FDIC to check at 1-877-ASK-FDIC). Also, you should know that investments are not covered by FDIC insurance, even if they are through an FDIC-insured bank. FDIC-insured bank accounts for individuals include single accounts, joint accounts, POD/ITF accounts, living trust account and irrevocable trust accounts (for a complete list of accounts that are covered, check out the FDIC Information Page). For an estimate on how much of your accounts is covered check out the FDIC EDIE calculator.
Money Exceeding FDIC Limits
If you have more than $250,000 to deposit, you need to pay special attention to how you deposit this amount in order to minimize your risk should your bank become insolvent. The FDIC explains that “All of your single accounts at the same insured bank are added together and the total is insured up to $250,000.
For example, if you have a checking account and a CD at the same insured bank, and both accounts are in your name only, the two accounts are added together and the total is insured up to $250,000.” However, “you may qualify for more than $250,000 in coverage at one insured bank or savings association if you own deposit accounts in different ownership categories.
The most common account ownership categories for individual and family deposits are single accounts, joint accounts, revocable trust accounts and certain retirement accounts.”
You can also open separate accounts at different banks to get more than $250,000 in FDIC insurance coverage. If you’re looking for a different bank to open an account to get additional FDIC insurance coverage, see our list of FDIC insured banks.