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Understanding FDIC Insurance: What You Need to Know
At O1ne Mortgage, we believe in providing our clients with the best financial advice and services. If you have any questions or need assistance with your mortgage needs, please call us at 213-732-3074. In this article, we will explore the essentials of FDIC insurance, including coverage limits and what happens when a bank fails.
What Is Covered by FDIC Insurance?
FDIC insurance safeguards your eligible deposits up to $250,000 per depositor, per insured bank, for each account category in the event of a bank failure. This protection is automatic if your account is under the Federal Deposit Insurance Corp. umbrella.
Accounts and Products Covered by FDIC Insurance
FDIC insurance covers a variety of accounts and products at insured banks, including:
- Checking accounts
- Savings accounts, including high-yield savings accounts
- Certificates of deposit (CDs)
- Money market accounts
- Cashier’s checks
- Money orders
- Negotiable order of withdrawal (NOW) accounts
Products Not Covered by FDIC Insurance
However, FDIC insurance does not cover the following products:
- Stocks
- Bonds
- Mutual funds
- Life insurance policies
- Annuities
- Municipal securities
- Safe deposit boxes and their contents
- U.S. Treasury bills, bonds, or notes
- Cryptocurrency assets
FDIC Coverage Limits
FDIC insurance covers deposits up to $250,000 per depositor, per FDIC-insured bank, in each ownership category. The coverage amount is determined by the FDIC ownership category, which is the way a bank holds deposits. These categories include:
Single Accounts
These are deposit accounts owned by one person without named beneficiaries. They include checking accounts, savings accounts, CDs, and money market accounts, and are insured up to a total of $250,000.
Joint Accounts
These are deposit accounts owned by two or more people without named beneficiaries. They are insured up to $250,000 per co-owner. For example, if you and your spouse are co-owners on deposit accounts at an FDIC-insured bank, you’re insured for up to a combined $500,000.
Certain Investment Accounts
This category includes self-directed individual retirement accounts (IRAs), self-directed defined contribution plans like 401(k) and profit-sharing plans, self-directed Keogh plans, and Section 457 deferred compensation plans. All eligible retirement accounts owned by the same person at the same bank are added together and insured up to $250,000.
Revocable Trust Accounts
These accounts are owned by at least one person who identifies at least one beneficiary who will receive the deposits when the owner dies. All revocable trust accounts owned by the same person at the same bank are added together, and the owner is insured up to $250,000 per beneficiary.
Irrevocable Trust Accounts
These accounts are opened in connection with an irrevocable trust. The owner adds deposits or other property to the trust and gives up all power to cancel or change the trust. Irrevocable trusts are typically insured for a maximum of $250,000, regardless of the number of beneficiaries.
Corporate, Partnership, or Unincorporated Association Accounts
These accounts hold deposits owned by corporations, partnerships, and unincorporated associations, including for-profit and not-for-profit organizations. All deposits owned by a corporation, partnership, or unincorporated association at the same bank are lumped together and insured up to $250,000.
What Happens to Deposits Over $250,000?
Deposits exceeding the coverage limits, such as $250,000 per account holder, might not be FDIC-insured. For instance, if you are a single account owner and your bank fails, you could recover up to $250,000 from your checking and savings accounts at that bank. If your combined deposits were $300,000, you might not be covered for $50,000 of that total.
For joint accounts, the insurance is up to $250,000 per depositor. If you and your spouse have joint accounts at a bank, your accounts would be covered for a total of $500,000. To ensure full coverage for amounts exceeding these limits, consider distributing your deposits among multiple banks.
What Happens When a Bank Fails?
When a bank fails, the FDIC, an independent federal agency, either finds a buyer for the bank’s remaining assets or pays the bank deposits directly to eligible account holders. A bank fails when it can’t honor financial commitments to account holders and others.
Most banks are insured by the FDIC. To check if your bank is insured, use the FDIC’s BankFind tool. Note that FDIC insurance does not apply to credit unions. Instead, the National Credit Union Administration (NCUA) provides similar coverage limits for credit union account holders.
The Bottom Line
FDIC insurance protects the deposits of millions of bank customers in the U.S. While it covers many types of accounts, it does not cover all financial products. If your accounts hold more than the maximum coverage amount, it’s wise to distribute your deposits among more than one insured bank.
For any mortgage service needs, O1ne Mortgage is here to help. Call us at 213-732-3074 to speak with one of our expert loan officers today!
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