You’ve spent years – maybe even decades – building up your savings, making smart financial choices, and preparing for the future. Then, one day, you hear news of a bank failure, and it hits you: some of your hard-earned money might not be protected because your bank accounts exceed FDIC insurance limits.
This isn’t just a hypothetical concern. Bank failures happen, and while the Federal Deposit Insurance Corporation (FDIC) is designed to protect depositors, it only covers up to $250,000 per depositor, per bank, per account category. If your savings exceed that limit, you could be exposed to unnecessary financial risk.
So, how can you make sure your money is fully protected? Let’s break it down.
Understanding FDIC Insurance: What It Covers and What It Doesn’t
The FDIC was created during the Great Depression to restore public confidence in the banking system. Today, it continues to be a critical safeguard for depositors. But FDIC insurance has limits, and understanding how it works is essential to ensuring your money is protected.
Here’s what you need to know:
- FDIC insurance covers up to $250,000 per depositor, per insured bank, per account ownership category.
- Covered account categories include single accounts, joint accounts, certain retirement accounts (like IRAs), and revocable trust accounts.
- The $250,000 limit applies separately to each category, meaning you may be able to increase your coverage by diversifying how your accounts are held.
For example, let’s say Maria has accounts at First National Bank:
✔ Personal checking account: $100,000 (covered)
✔ Joint savings account with her husband: $300,000 (her $150,000 share is covered)
✔ IRA account: $200,000 (covered under retirement account insurance)
In total, Maria has $450,000 in deposits at this bank, and because of how her accounts are structured, all of her money is insured.
Now, ask yourself: Are all of your deposits fully covered? Or do you have funds that exceed these limits and need additional protection?
What to Do When Your Savings Exceed FDIC Limits
If your deposits go beyond FDIC insurance coverage, you’ll want to take proactive steps to safeguard your money. Here are some effective strategies:
1. Spread Your Deposits Across Multiple Banks
A straightforward way to increase FDIC protection is to divide your money among different FDIC-insured banks. Each bank provides its own separate $250,000 coverage, so if you have $750,000 in savings, you could deposit $250,000 at three different banks to ensure full protection.
This strategy reduces your risk if one institution fails, but it does require managing multiple accounts. If you have a trust in place, it’s also crucial to ensure that each account is titled correctly in your trust’s name.
2. Use Different Ownership Categories to Maximize Coverage at One Bank
If you prefer to keep your banking relationships simple, you can maximize your FDIC insurance by using different ownership categories at a single institution. For example:
✔ Husband’s individual account: $250,000 (covered)
✔ Wife’s individual account: $250,000 (covered)
✔ Joint account: $500,000 ($250,000 per owner, covered)
✔ Husband’s IRA: $250,000 (covered)
✔ Wife’s IRA: $250,000 (covered)
By structuring accounts in this way, a couple could have up to $1.5 million fully insured at a single bank. If you have a revocable trust, it’s important to ensure that your accounts are properly titled to align with both FDIC coverage and your estate plan.
3. Consider Certificate of Deposit (CD) Laddering Across Multiple Banks
CD laddering involves purchasing certificates of deposit at different banks to spread out your deposits while benefiting from competitive interest rates.
For example, if you have $1 million in cash, you could divide it into four $250,000 CDs at four different banks, ensuring each deposit is fully insured. As each CD matures, you can decide whether to reinvest or reallocate funds based on interest rates and your financial needs.
If you pursue this strategy, make sure your CDs are properly titled in your living trust if you have one.
4. Look Into Credit Union Coverage
Credit unions provide a similar level of protection through the National Credit Union Administration (NCUA). Like FDIC insurance, NCUA share insurance covers up to $250,000 per depositor, per credit union, per ownership category. If you’re looking for additional deposit protection, credit unions can be a great option.
5. Consider Cash Management Accounts and Treasury Securities
For those with substantial cash holdings, there are additional ways to protect and manage your money:
✔ Cash Management Accounts (CMAs): Offered by brokerage firms, CMAs automatically spread your deposits across multiple FDIC-insured banks, maximizing coverage without the need to open multiple accounts yourself.
✔ Treasury Securities: If you have concerns about bank stability, you may consider U.S. Treasury securities, which are backed by the federal government. However, if you’re worried about the U.S. debt crisis and potential default, this may not be the right choice for you.
Building a Protection Plan That Works for You
Protecting your financial future isn’t just about ensuring your money is covered by FDIC insurance – it’s about having a comprehensive plan that aligns with your overall financial and estate planning goals.
Here’s how to get started:
✅ Assess Your Current Banking Structure: Review where your money is held, how your accounts are titled, and whether any funds exceed FDIC limits.
✅ Choose the Right Strategy: Depending on your preferences, you may opt for a multiple-bank approach, different ownership categories, CD laddering, or a mix of strategies.
✅ Ensure Your Accounts Align with Your Estate Plan: If you have a revocable trust, it’s essential to verify that your accounts are correctly titled to align with both FDIC protection and your broader financial goals.
Protect Your Savings and Secure Your Legacy
Having significant cash reserves is a great financial position to be in – but it also requires careful planning to protect against unnecessary risks. By taking a proactive approach, you can ensure that your hard-earned money remains safe, accessible, and aligned with your long-term goals.
If you’d like guidance on structuring your accounts, ensuring FDIC protection, or integrating your financial assets into a comprehensive estate plan, I’m here to help. Let’s create a strategy that gives you peace of mind and protects your wealth for generations to come.
At Cheever Law, APC, we don’t just draft documents; we ensure you make informed and empowered decisions about life and death for yourself and the people you love, starting with a valuable and educational Life & Legacy Planning Session. This will allow you to get more financially organized and make the best choices for the people you love. If you have already completed your estate plan, we will review that plan at your Life & Legacy Planning Session to ensure that it will work the way you intend and address any holes or gaps that may be present if circumstances have changed since you executed your plan.
To learn more about our one-of-a-kind systems and services, contact us or schedule a no-obligation 15-minute introductory phone call today.