FDIC Insurance – How It Works and Why It Matters

Written by Vertical GM

 

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the U.S. government. Created in 1933 during the Great Depression, the FDIC was founded to insure bank deposits in case the bank failed. As a whole, the FDIC was established to increase the public’s trust in the banking system.

 

How Does the FDIC Work?

 

When you deposit your money into a bank account, your funds do not just sit idle. Banks actually invest your money to earn revenue. For example, at Live Oak Bank, we invest your dollars into small business ventures across the nation. FDIC insurance protects these deposits on your behalf. FDIC coverage applies to deposit accounts, including checking accounts, savings accounts, money market deposit accounts, and Certificates of Deposit.
FDIC insurance covers up to $250,000 per depositor, per insured bank, for each account ownership category. FDIC coverage starts automatically as soon as you open your account. But keep in mind: if you choose to create a payable-on-death account, we’ll need some identifying information about your beneficiaries—like an address, birthdate, and government-issued ID number—to comply with the FDIC’s record keeping rules. You can be strategic about gaining additional coverage by having qualifying accounts under different ownership categories.

 

How to Maximize FDIC Insurance Coverage

 

As a consumer, there’s a strategy to maximize your FDIC insurance coverage by opening accounts in different ownership categories.

 

1. Single account. When you open an account by yourself (single account), the coverage limit is $250,000 per owner. Married couples can each open a single account and have full coverage on both accounts, up to $250,000 per account. So, a couple could have $500,000 protected by the FDIC with two single accounts.

 

2. Joint account opened by two or more people, without named beneficiaries. If you open a joint account with two owners (example: you and your spouse), you will each be covered up to $250,000, which doubles your FDIC coverage.

 

3. Account with beneficiaries (aka revocable trust account). You can increase your FDIC insurance coverage by creating a payable-on-death account (also known as an informal trust or in-trust-for) or titling an account in the name of a formal revocable trust. For these account types, each unique beneficiary adds $250,000 of coverage up to FDIC limits. For example, a payable-on-death account with 1 owner and 5 beneficiaries could be insured up to $1,250,000.

 

The examples above are simply to explain how FDIC coverage works and are not intended as financial planning advice – be sure to have a conversation with your own financial advisor. Did you know that you can get help with calculating your FDIC coverage? You can find out how much FDIC coverage you have by using the EDIE calculator1 found on the FDIC’s website. Want to know more about deposit insurance? The FDIC website has a variety of materials to help you learn more2.

 

It’s important to note that not all banks have FDIC insurance, so be sure to ask before you open a deposit account. Check to see if your bank has coverage on the FDIC’s website3.

 

Live Oak is committed to keeping your assets safe and participates in the FDIC insurance coverage program on all of our deposits products. We’ll work with you to maximize your FDIC insurance coverage, depending on your needs. Visit liveoakbank.com to learn more.

 

1. Federal deposit insurance corporation. https://edie.fdic.gov/.
2. Federal deposit insurance corporation. https://www.fdic.gov/resources/deposit-insurance/understanding-deposit-insurance/
3. Federal deposit insurance corporation. https://banks.data.fdic.gov/bankfind-suite/financialreporting.