As advisers we often get the question, where can I put some of my money and know that it will be safe? It is important to understand that deposits into a U.S. bank or credit union account can offer some protections.
The Federal Deposit Insurance Corporation (FDIC) for banks and the National Credit Union Administration (NCUA) for credit unions both provide guarantees to U.S. depositors. In the case of bank deposits, these are backed by the full faith and credit of the United States government. The FDIC was established in 1933 after many American banks went bankrupt during the early years of the Great Depression. In the case of credit unions, Congress established the NCUA in 1970 as an independent agency to charter and supervise federal credit unions.
So, what are the limitations when it comes to guaranteed money at a bank or credit union? The standard insurance amount is $250,000 per depositor, per insured bank or credit union, per account ownership category. That means separate coverage is provided for deposits held in different personal account ownership categories as outlined below (personal accounts also include deposits in the name of a sole proprietorship). Make sure your deposits do not exceed the insurance limit for any of the listed ownership categories.
- Single Accounts – one owner, no beneficiaries
- Joint Accounts – two or more owners, no beneficiaries
- Payable on Death (POD)/In Trust For (ITF) Accounts – one or more owners, with named beneficiaries
- Living Trust Accounts – held pursuant to a formal revocable trust
- IRAs – Individual Retirement Accounts
To understand how much coverage you currently have, you can use the calculators listed below for your account holdings. Alternatively, you could also contact your bank or credit union for assistance if you have more detailed questions regarding your personal situation.
- FDIC Insurance Calculator: https://edie.fdic.gov/calculator.html
- NCUA Insurance Calculator: https://www.mycreditunion.gov/insurance-estimator
Because FDIC and NCUA insurance is bank and credit union-specific, once you have exhausted the above ownership categories and limits, you could choose to open up similar accounts at different banks or credit unions to spread out your guarantees.
Unlike other types of insurance, depositors do not need to apply for FDIC or NCUA insurance. This coverage is automatically applied whenever a deposit account is opened at an FDIC-insured bank or NCUA-insured credit union.
It is important to note that FDIC and NCUA insurance does not cover funds held in investment accounts such as stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities (even if they were purchased from an FDIC-bank or NCUA-insured credit union).
Investment accounts may be covered by the Securities Investor Protection Corporation (SIPC). It is important to understand that SIPC only protects the custody function of the broker dealer, meaning that SIPC will work to help account holders regain access to their securities and cash that are held in their accounts when their brokerage firm begins to liquidate. SIPC does not protect against the decline in value of your securities, nor does it protect worthless securities or losses due to a broker’s bad or inappropriate investment advice. If your brokerage firm goes out of business and is a member of the SIPC, then your cash and securities held by that brokerage firm may be protected up to $500,000 per account, per brokerage firm (up to $250,000 of which can be in cash).
For more information and resources regarding FDIC, NCUA, and SIPC insurance, you can visit the following websites which are listed below.
- FDIC Website: https://www.fdic.gov/resources/deposit-insurance/
- NCUA Website: https://www.ncua.gov/
- SIPC Website: https://www.sipc.org/