Best Ways To Insure Excess Deposits

Think of FDIC insurance as your financial safety net at your bank.

The Federal Deposit Insurance Corporation (FDIC) insures deposits up to a limit of $250,000 per depositor, per FDIC-insured bank, per ownership category — which helps ensure your money is protected even if your bank fails.

But what if you plan to keep more than the limit in your deposit accounts? Here’s what you need to know about FDIC insurance limits and five of the best ways to insure excess deposits.

Understanding FDIC insurance limits

The FDIC insures traditional deposit products, including:

Each of these accounts is protected up to the $250,000 limit. The FDIC insurance limit has been the same for more than a decade.

However, not everything at your bank falls under FDIC protection. Investment products like stocks, bonds, and mutual funds aren’t covered, even if you purchased them through your bank. The FDIC also doesn’t insure cryptocurrencies, the contents of safe deposit boxes, life insurance policies, annuities, or municipal securities.

To understand FDIC limits, it’s also important to know about the different account ownership categories:

• Single accounts (one owner) are insured up to $250,000 total at each bank.
• Joint accounts (two or more owners) provide $250,000 in coverage per owner.
• Retirement accounts like IRAs receive their own $250,000 in coverage, separate from your other accounts.
• Business accounts are also insured up to $250,000, independent of any personal accounts you may have at the same bank.

Having multiple accounts of the same type at one bank doesn’t increase your coverage. For example, three savings accounts at the same bank would share one $250,000 limit. Online banks that are FDIC members provide the exact same protection as traditional brick-and-mortar banks.

To verify your coverage, you can use the FDIC’s Electronic Deposit Insurance Estimator (EDIE) online or call the FDIC directly at 877-ASK-FDIC (877-275-3342).

What if you have more than $250,000 in one account?

If you have more than $250,000 in a single account, only a portion of your money is protected.

Let’s say you have $300,000 in a savings account – the FDIC would immediately guarantee your first $250,000, but the remaining $50,000 would be considered uninsured.

Recent bank failures provide some interesting context. When Silicon Valley Bank and Signature Bank failed in 2023, the federal government took extraordinary steps to protect all depositors, even those with balances above $250,000. But there’s no guarantee of similar protection for future bank failures.

The good news is that you don’t have to risk having uninsured deposits. Banks and credit unions offer several ways to structure your accounts to ensure all your money is protected. Let’s take a look at some of your options.

1. Use bank networks to maximize coverage

If you want to spread your money around to expand your FDIC coverage, bank networks offer a way to do so without banks managing multiple accounts yourself. These services automatically distribute your excess deposits to ensure maximum FDIC protection.

IntraFi Network Deposits, a network that works with thousands of banks, will spread your money across multiple banks to ensure you’re adequately covered. This service works with checking accounts, money market accounts and CDs.

Similarly, Impact Deposits Corp. offers insurance protection for excess deposits through its network of almost 200 FDIC-insured community banks.

Some financial institutions offer expanded FDIC insurance through their own partner bank networks. For example, SoFi Bank provides up to $2 million in protection by automatically distributing deposits across its network of partner banks.

For Massachusetts residents (or those banking with Massachusetts-based institutions), the Depositors Insurance Fund (DIF) offers unlimited insurance above FDIC limits. This program requires no paperwork or special account structuring – any amount above the FDIC’s $250,000 limit is automatically protected at member banks.

2. Open accounts with different ownership categories

Opening accounts under different ownership categories at the same bank is one of the simplest ways to increase your FDIC coverage. Each ownership category receives its own $250,000 insurance limit, effectively multiplying your protection.

For example, a married couple could structure their accounts to insure $1 million at a single bank:

• Individual account in spouse #1’s name: $250,000
• Individual account in spouse #2’s name: $250,000
• Joint account owned by both spouses: $250,000
• Retirement account (IRA): $250,000

You could also set up a trust and name beneficiaries who would receive the money upon your death if you have significant excess deposits. Each beneficiary you name adds another $250,000 in coverage

If you have a business account and a personal account at the same bank, those are separate ownership categories that can increase your FDIC insurance coverage.

3. Open accounts at multiple FDIC-insured banks

You can easily insure your excess deposits by opening accounts at separately chartered banks to expand your FDIC coverage if you’re willing to put in the time and stay organized enough to keep tabs on your accounts. Opening accounts at different branches of the same bank won’t increase your insurance.

This approach works particularly well for CD investors. You might open a $250,000 CD at an online bank offering a competitive rate for a 1-year term, and another $250,000 CD at a different bank with a 2-year rate. Popular online banks like Ally and Marcus by Goldman Sachs typically offer some of the most competitive rates alongside full FDIC coverage.

Keep in mind that different branches of the same bank count as one institution for FDIC purposes. Opening multiple accounts at different Chase branches, for example, won’t increase your coverage.

4. Consider a credit union

Credit unions offer an alternative to traditional banks with similar federal insurance protection through the National Credit Union Administration (NCUA).

NCUA insurance, like FDIC insurance, is backed by the full faith and credit of the U.S. government and provides the same $250,000 coverage per account ownership category as the FDIC. You can use the NCUA’s Share Insurance Estimator to see if all your credit union deposits are covered.

Credit unions often higher rates on deposits than traditional banks, alongside generally lower fees and more personalized service. Some state-chartered credit unions offer additional private insurance above the federal limit.

You have to become a credit union member to open a deposit account, but membership requirements are often lenient, extending to family and friends.

5. Explore a brokerage account

Major brokerage firms like Fidelity or Charles Schwab offer certain FDIC-insured deposit accounts, including bank accounts, cash management accounts and health savings accounts.

Many of these programs automatically spread your money across multiple partner banks, each providing $250,000 in FDIC coverage.

Some brokerage accounts also offer access to a money market fund as an alternative to a deposit account. While not FDIC-insured, these funds invest in cash and short-term government securities and are generally considered very low-risk investments. They often offer higher yields than traditional savings accounts and can be a good option for excess cash.

Many brokerages also offer CDs from different banks nationwide, making it easy to stay within FDIC limits while potentially earning better rates. Just be aware that you’re responsible for making sure your money is spread out among separately chartered banks to maximize your FDIC insurance.

Bottom line

Anyone with more than $250,000 in deposits at an FDIC-insured bank should see that all monies are federally insured.The simplest approach is to spread your money across several FDIC-insured banks or use different account ownership categories at your current bank. If you prefer a more hands-off solution, bank networks can automatically manage the process for you, protecting potentially millions in deposits.

Remember, always verify your bank’s FDIC membership status and track your total deposits at each bank across all of your accounts. Taking steps to protect your excess deposits can offer peace of mind and makes sure your money remains safe, regardless of what happens to your bank.