How Do You Insure Funds More Than the FDIC Limit?

With the recent high-profile closures of First Republic Bank, Silicon Valley Bank and Signature Bank, you might be wondering how safe your money is. While bank failures are still rare, it’s smart to take precautions to make sure your bank deposits are fully protected. Thanks to two government agencies, they likely are. The Federal Deposit Insurance Corp. insures deposits at most banks, while the National Credit Union Administration insures deposits at most credit unions. There’s a cap on the amount your deposits can be insured for, however – what if you want to insure them for more? Read on to find out how.

What Is the FDIC?

How Do You Insure Funds More Than the FDIC Limit?

The FDIC is an independent government agency that oversees the banking industry. Its primary duty is to insure deposits at U.S. banks. The FDIC also supervises and examines banks and savings associations all over the country to confirm they’re reliably operating. The FDIC also ensures that banks comply with consumer protection laws. It’s headquartered in Washington, D.C..

How Much Does the FDIC Insure?

Deposit insurance is one of the benefits of having an account at an FDIC-insured bank, because it’s how the FDIC protects your money in the unlikely event of a bank failure. Deposits are insured up to $250,000 per depositor, per ownership category, per institution.

FDIC insurance covers the following:

Checking accounts
Savings accounts
Money market accounts
Certificates of deposit
Cashier’s checks
Money orders

The FDIC doesn’t cover these categories:

Annuities
Stocks, bonds or mutual funds investments
Losses from investments, even if purchased from insured bank
Life insurance policies
Safe deposit box contents housed at a bank
Municipal securities

How Does FDIC Coverage Work?

These examples illustrate how deposits are insured by FDIC coverage:

You and your spouse have individual savings accounts at the same bank, each with $200,000 deposited. You’re fully insured because your accounts have different depositors – you and your spouse.
You have two checking accounts at two different banks, each with $200,000 deposited. You’re fully insured because your accounts are at two different institutions.
You have a personal account and a business account at the same bank, each with $200,000 deposited. You’re fully insured because your accounts are in different ownership categories – personal and business.
You have two individual personal checking accounts at the same bank, each with $200,000 deposited. You’re insured only up to $250,000 because both of your accounts have the same depositor, ownership category and institution.

When it comes to living trusts, however, FDIC coverage is “calculated differently than most people expect,” says Stephen Reh, a financial advisor at Reh Wealth Advisors in San Dimas, California. The $250,000 limit applies “per beneficiary, per grantor.”

For example, if two spouses have two children and each parent has set up a trust for each child, coverage would extend to $1 million. The math is: $250,000 from the father for Child 1 and another $250,000 for Child 2, then $250,000 from the mother for Child 1 and another $250,000 for Child 2.

How Can You Insure More Than $250,000?

The $250,000 limit may sound high, but there are some common situations when you may have more cash in a bank, such as if:

You sold your home
You’re saving to buy a home
You received an inheritance
You own a business
You sold a business
You’re repositioning investments before retirement
You’re retired
You have trust accounts

Here are four ways you may be able to insure more than $250,000 in deposits:

Open accounts at more than one institution. This strategy works as long as the two institutions are distinct. To confirm that, check their FDIC certificate numbers, which are unique to each bank.
Open accounts in different ownership categories. Examples of categories include single, joint, retirement account, trust, business, employee benefit plan and government. Accounts may need to meet certain requirements to be covered.
Use a network. Networks are designed to help depositors insure large sums. IntraFi Network Deposits divides big deposits into demand deposit accounts, money market deposit accounts and certificates of deposit at FDIC-insured banks. A Max checking account allocates deposits among FDIC-insured banks to try to maximize interest earnings. Services like these may involve fees.
Open a brokerage deposit account. Most large brokerage companies offer FDIC-insured bank accounts.

“An FDIC brokerage cash account will keep your money federally insured, and since it’s linked with a brokerage house, you can easily execute trades into the market,” says Elliot J. Pepper, co-founder and certified financial planner at Northbrook Financial in Baltimore.
The Securities Investor Protection Corp. insures securities held in investment accounts up to $500,000 with a $250,000 limit for cash. This insurance doesn’t protect you from investment losses, but it steps in if your brokerage company fails.

“Most brokerage accounts will often offer additional coverage,” says Chris Struckhoff, financial planner at Creative Planning in Irvine, California.