You hope that, when you trust a financial institution with your money, those finances will be protected no matter what. In most cases, that’s true and it’s all thanks to the FDIC insuring those banks.
But what happens if the bank fails, or you have more money than what’s covered by insurance? We’re here to tell you everything you need to know about FDIC insured bank accounts so that you can make the smartest decisions about your hard-earned finances.
What is FDIC Insurance?
The FDIC, or Federal Deposit Insurance Corporation, was established in the 1930s as a response to the widespread failure of banks during the Great Depression. The goal was to protect consumer deposits in financial institutions should they fail.
Funds up to $250,000 per depositor in each institution, per ownership category, are covered by the FDIC. When looking to open a personal checking account, or even commercial checking and savings, it’s always a good idea to look for the FDIC insurance logo on the bank’s site. This will instantly tell you whether or not the institution itself is covered under FDIC insurance. Credit unions with FDIC insurance are also backed by the National Credit Union Administration.
There’s nothing you need to do when opening a new account to be covered—simply look for FDIC insured banks in Texas and the insurance will automatically apply once your new account is open. As of March 2023, there are 387 institutions in the state that are FDIC insured, both traditional and digital banks.
What accounts are covered?
FDIC insurance covers up to $250,000 per depositor in the following types of accounts:
- Checking accounts
- Savings accounts, including high-yield
- Money market accounts
- Certificate of deposit (CDs) accounts
- Health Savings accounts (HSAs)
- Retirement accounts
When you’re looking for the best savings account rates, you can rest assured that there are several different types of accounts you can open to maximize your earnings, all while still being FDIC insured.
FDIC Ownership Categories and Limits
It’s important to understand exactly what is and isn’t covered when you open a new bank account. The FDIC clearly outlines the different ownership categories you should be aware of and the limits each of these has for the funds they contain.
Per depositor, per institution
Money insured by the FDIC must be on a per-depositor basis. In other words, deposits by a single individual at a single insured bank. Any funds being held at another institution will not be covered unless they’re also being held in an FDIC-insured account.
The $250,000 limit on insured funds covers all deposits owned by a single person at the same insured bank. This is particularly important if you’re looking for business bank accounts in Houston or beyond and you run a successful business that holds more than $250,000 at any one time. It may be more beneficial to spread your funds between different account types and institutions or have different accounts under different individual owners.
Per ownership category
Ownership categories denote who has legal ownership over each individual account. There are several different types but the most common are single and joint ownership.
Single ownership accounts have one owner and no beneficiaries, so an individual can deposit up to the $250,000 limit to be fully insured. All accounts owned by the individual at the same financial institution will count towards the $250,000 limit when added together.
With joint accounts, these have two or more owners and no beneficiaries. The biggest difference from single accounts is that the $250,000 limit is per co-owner. A savings account owned by two people, for instance, would have coverage up to $500,000. Joint accounts do not include jointly owned revocable trust accounts.
Other ownership categories include:
- IRAs and other retirement accounts
- Trust accounts
- Employee benefit plan accounts
If funds are spread across different ownership categories, individuals may qualify for more than $250,000 of insurance coverage.
What is not covered under FDIC insurance?
There are several types of financial accounts that are not covered by the FDIC insurance. These are:
- Investment losses
- Life insurance policies
- Safe deposit box funds
- Municipal securities
- U.S. Treasury bills, bonds, and notes (these are backed by the Federal Government instead)
What happens if an institution fails where you have an FDIC insured account?
When a bank fails, this means that they are no longer able to fulfill their obligations to customers, such as returning deposits or paying back debts. At this point, the FDIC will step in to protect the customers of that institution.
According to data from the FDIC, over 500 banks failed between 2001 and 2023, with 13 of these in Texas. However, if a bank is FDIC insured and you meet the $250,000 deposit limit or lower, your money is fully protected.
The FDIC protects consumer money in two ways when a bank fails. Firstly, they will pay or provide access to funds that impacted customers have in the bank, while taking over the bank’s assets and liabilities.
From there, the FDIC will sell or collect any assets, pay off debts, and manage insured deposits on behalf of the bank. In many cases, a stable and healthy financial institution will buy and acquire the failed bank.
How to Maximize Coverage
If you have more than $250,000 in deposits, there are several different strategies you can use to ensure that your funds are protected beyond the typical FDIC limits.
Opening accounts at several financial institutions not only provides you with more FDIC coverage, but also some additional security. It’s unlikely that, should one of your institutions fail, all of them will at the same time. This means that you still have access to funds in the other banks while you go through the FDIC insurance process at the failed institution.
You could also consider opening joint accounts with a spouse, partner, parent, or trusted friend or family member. This increases your overall FDIC coverage limit, as joint accounts are based on a $250,000 per account co-owner limitation.
Opening retirement accounts or adding beneficiaries to trust accounts can also increase your overall FDIC coverage limit. By using several of these strategies at once, you could significantly increase the deposit amount covered by FDIC insurance.
As a small business owner, these same strategies can work well. Consider looking for extra coverage by opening accounts at different institutions. The best business bank accounts in Houston and throughout Texas will all be FDIC insured and, if you’re a single business owner, you can still benefit from additional coverage without having a joint account.
Open an FDIC Insured Bank Account Today!
When you’re ready to open a new personal or commercial bank account, talk to a Moody Bank professional to get started. Open a Moody Bank checking or savings account today by calling, starting an application online, or visiting one of our branches in Austin, Houston, Galveston and beyond.