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Understanding FDIC Insurance Thumbnail

Understanding FDIC Insurance

If you have money in the bank, you want to know that it’s protected. Luckily, the Federal Deposit Insurance Corporation, or FDIC, insurance was designed to ensure your peace of mind. FDIC insurance protects your money in case something happens to the bank.

Let’s dive deeper into what FDIC insurance is, how it works, and what it protects. This article also provides some financial strategies to maximize your FDIC insurance benefits.

What Is FDIC Insurance?

The FDIC is an independent government agency that protects bank depositors from the loss of uninsured deposits at an FDIC-insured bank. This organization oversees FDIC deposit insurance, which protects bank customers in the event that an FDIC-insured institution fails.1 In other words, FDIC insures your money at the bank.

A bank failure is an unlikely situation, but it’s possible. In that case, the FDIC would provide depositors with an insurance payout up to the insurance limit, which in most cases is $250,000 per depositor, per institution, and per ownership category (more on that later). They might do this by offering depositors a new account of the same amount at an insured bank or by issuing a check for the insured amount to the depositor.

If you bank at an FDIC-insured institution, you don’t need to apply for FDIC insurance because coverage is automatic. 

FDIC Insurance at Baird

Deposits at banks and CDs are generally insured by the FDIC on principal and accrued interest up to $250,000 per individual depositor for all deposits held in the same capacity at a bank. For joint accounts, the insurance limit is $250,000 for each owner of the account. Baird maintains a Cash Sweep Program with a number of FDIC-insured participant banks. By having a number of FDIC-insured banks participating, your cash balances can be spread among these banks, providing the potential for FDIC coverage greater than that which you would have if your cash deposits were held only in a single bank. This feature currently seeks to make available up to $1,250,000 for most account types (or $2,500,000 for joint accounts with two or more owners) of aggregate FDIC insurance protection for the cash balances of clients participating in the Cash Sweep Program. Please note the number of banks participating in the Cash Sweep Program may change from time to time. 7

A History of FDIC Insurance

Believe it or not, money stored at the bank wasn’t always protected with insurance! FDIC insurance was established in 1934 as a response to the bank failures depositors witnessed during the Great Depression.2

Since then, there have been multiple instances of banks failing, and the FDIC has continuously protected insured deposits. For example, dozens of banks failed during the Great Recession, and four banks failed in 2020.3 While it’s unlikely to happen, banks do fail, which is why it’s important to make sure your deposits are insured.

What Does FDIC Insurance Protect?

Now, for the most important question: What does FDIC insurance protect? The FDIC’s website does a great job of explaining what’s covered under FDIC insurance and what isn’t.4


First, FDIC insurance covers traditional deposit accounts of up to $250,000 per depositor, per institution, and per ownership category. These traditional deposit accounts include the following:


  • Checking accounts
  • Savings accounts
  • Money market deposit accounts
  • Certificates of deposit (CDs)
  • Prepaid cards (assuming all FDIC requirements are met)


In addition, the FDIC also insures retirement accounts in which plan participants have the right to direct how the money is invested, including:


  • IRAs
  • 401(k)s or other self-directed defined contribution plans
  • Self-directed Keogh plan accounts
  • Section 457 deferred compensation plan accounts, whether self-directed or not


They may also insure an employee benefit plan that is not self-directed, such as a pension plan.

What Does FDIC Insurance Not Protect?

Now that you understand what FDIC insurance does cover, let’s also look at what it doesn’t cover.5 The FDIC states that it does not cover:


  • Stocks
  • Bonds
  • Mutual funds
  • Life insurance policies
  • Annuities
  • Municipal securities
  • Safety deposit boxes or their contents
  • US Treasury bills, bonds, or notes


With these types of accounts, talk to your financial advisor to ensure that they are protected.


How to Maximize Your FDIC Insurance

It’s important to know how to maximize your FDIC insurance and make the most out of your coverage. 


As we mentioned above, the FDIC insures up to $250,000 for a single or joint account per depositor, per institution, per ownership category. This means that a person can have one account or multiple accounts at the same bank, but only $250,000 is insured. 


But, there are multiple strategies to enhance your coverage. The most simple is to open multiple bank accounts at multiple banks and not have them exceed $250,000. 


But, you may also be able to set up a revocable trust and identify one or more beneficiaries to increase your coverage. Each beneficiary then receives $250,000 of coverage. For example, a revocable trust account with one owner that names three unique beneficiaries can be insured up to $750,000.6 There are a few qualifications for setting up both revocable and irrevocable trusts, though, so talk to your financial professional to make sure your account qualifies for increased FDIC insurance. 


The FDIC has set out to protect depositors in the case of an emergency and FDIC insurance is a great tool to securely store your assets.

  1. https://www.fdic.gov/resources/deposit-insurance/faq/index.html
  2. https://www.fdic.gov/about/what-we-do/index.html
  3. https://www.fdic.gov/resources/resolutions/bank-failures/failed-bank-list/
  4. https://www.fdic.gov/resources/deposit-insurance/financial-products-insured/
  5. https://www.fdic.gov/resources/deposit-insurance/brochures/deposits-at-a-glance/
  6. https://www.fdic.gov/resources/deposit-insurance/faq/index.html
  7. https://www.rwbaird.com/help/safety-of-client-assets/

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

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