Putting your money in a bank account is probably safer than stashing it underneath a mattress or hiding it in a box by an interchange off the I-295. But why exactly is it safe?
If you park your money into an FDIC-insured bank account, you can rest assured your money is safe in the rare case the bank goes belly-up or suffers a theft.
While bank failures are a rare occurrence, they do happen. FDIC insurance protects up to $250,000 per depositor, per insured bank. This is the case for each account ownership category.
FDIC insurance is provided by the Federal Deposit Insurance Corporation (FDIC), an independent federal government agency tasked with safeguarding account holder's money should a bank fail or suffer theft.
If you'd like to learn more about how FDIC insurance protects your money stashed in bank accounts, we'll go over what's covered by FDIC insurance, what's not covered, how to check if your account is FDIC insurance, and its coverage limits.
What’s covered by the FDIC?
The FDIC protects traditional accounts, such as standard deposit accounts:
- Checking accounts
- Saving accounts
- Money market deposit accounts
- Certificates of deposits (CDs)
- Prepaid cards (as long as they meet specific FDIC criteria)
- Cashier's checks and money orders
You don’t have to take any action to be ensured. You're automatically covered if the financial institution you do your banking at is an FDIC-insured bank. You'll want to ensure you're putting your money into a deposit account.
What’s not covered by the FDIC?
Non-deposit accounts and non-traditional accounts generally aren't protected by the FDIC:
- Stock investments
- Bond investments
- Mutual funds
- Life insurance policies
- Annuities
- Municipal securities
- Safe deposit boxes and contents
- Crypto assets
- U.S. Treasury bills, bonds or notes
While these products might be offered at your bank, only deposit accounts are insured by the FDIC. If they're not deposit accounts, then they're not backed by the FDIC. The money you put into these financial products won't be insured.
The FDIC does not back accounts from credit unions. The National Credit Union Administration (NCUA) protects up to $250,000 in particular accounts for its member credit unions.
How to check if your account is FDIC insured:
- Look for the FDIC sign. This is typically displaced at the teller stations inside brick-and-mortar branches. This is tangible proof that the FDIC will insure your money.
- Ask a bank rep. If you're curious whether your bank is an FDIC-insured one, you can also contact your bank and inquire.
- Call the FDIC. You can reach out to the FDIC directly at 877-275-3342.
- You can use the FDIC's BankFind tool to search and check whether the FDIC backs a bank.
Curious which banks that operate out of New Jersey are FDIC insured? FDIC-insured banks include Peapack-Gladstone Bank, Provident Bank, Union County Savings Bank, and The First National Bank of Elmer.
FDIC insurance coverage limits
FDIC insurance will back up $250,000 per deposit, per insured bank, per ownership category. Ownership category is how you own the account. Here are the different types of ownership categories:
| Ownership category | Coverage limit |
|---|---|
Single accounts | $250,000 per owner |
Joint accounts | $250,000 per co-owner |
Certain retirement accounts (i.e., IRAs) | $250,000 per owner |
Revocable trust accounts | $250,000 per owner per unique beneficiary |
Irrevocable trust accounts | $250,000 per noncontingent interest of each beneficiary |
Employee benefit plan accounts | $250,000 per noncontingent interest of each plan participant |
Government accounts | $250,000 per official custodian |
Corporation, partnership, and unincorporated association accounts | 250,000 per corporation, partnership, or unincorporated beneficiary |
To sum things up: The total amount in all the accounts owned by the same person at the same financial institution cannot be more than $250,000.
For example: you have a savings and checking account with the same bank. You have $200,000 stashed in your savings account with a bank. In that case, you can't have more than $50,000 in your checking account.
What happens if an FDIC insured bank fails
You can rest easy knowing the FDIC has your back if an FDIC-insured bank fails. The FDIC will pay the bank's depositors insurance up to the covered amount. In the past, the FDIC was known to pay the depositors within a few days after a bank failed.
This is done in one of two ways: giving the depositor a new account at a different bank with the same balance amount; or paying the deposit the covered amount that was lost in the failed bank. So if someone had $5,000 in a savings account, and the bank failed, the FDIC would pay that person $5,000.
FDIC insurance pros and cons
While it's great to have the money stashed in your bank account protected, putting your account in an FDIC-backed account has some advantages and downsides. Let's start with the plusses:
Pros
There are quite a few positives:
High amount of coverage. FDIC insurance guarantees a significant amount: $250,000 of all combined accounts. That typically is plenty of coverage.
Built-in coverage. You don't have to sign up or pay a fee for your money to be insured. When you open an eligible account and park your money into it, protection kicks in right away.
Cons
Now, for the minuses:
Money that exceeds the limit won't be covered. Should you have more than $250,000 in all the insured deposit accounts with a bank, keeping it all in one place doesn't make sense. You're probably better opening accounts with another FDIC-insured bank and moving some of your money there. That way, all your money will be protected.
Might not be enough coverage for a business. Small businesses with total funds exceeding $25,000 will have to resort to opening multiple accounts at different banks.
While bank failures are few and far between, they do happen. Knowing how to best safeguard your money and how FDIC insurance works can help you ensure your money is protected.
This story was written by NJ Personal Finance, a partner of NJ.com. The information presented here is created independently from the NJ.com editorial staff, and purchases made through links in this article may result in NJ.com earning a commission.
