What is an FDIC Insured Bank Account?

With several bank failures in the news, many customers are wondering if their money at their bank is safe. You may have heard of FDIC insurance, but the terms can be complex, and it can be hard to determine which of your funds are covered—and to what extent.

The good news is that deposit accounts (including your checking and savings accounts) at FDIC-insured banks like CS Bank automatically come with FDIC insurance of up to $250,000. However, FDIC insurance does have a few ins and outs that consumers should be aware of, especially when you have larger account balances.

In this post we’ll answer many of your basic questions, from What is an FDIC-insured account? to How do I know if my account is covered?, as well as provide tips for keeping your money outside of FDIC protections safe, too.

The FDIC (Federal Deposit Insurance Corporation) was created in 1933 to protect consumers and businesses with bank accounts from losses, should their bank ‘fail’. While bank failures are rare—only a few per year on average, out of over 4000 FDIC-insured banks—this is in part due to the rules and oversight the FDIC provides. In addition to insuring your funds, the FDIC also protects them by providing governance to keep banks running smoothly while limiting risk.

Firstly, the FDIC only insures deposit accounts at banks. Safe bank accounts include checking accounts, savings accounts, money market deposit accounts, certificates of deposit (CDs), and some prepaid cards. Credit unions have their own governing body, NCUA, that provides similar insurance. And investment accounts are generally not FDIC insured (more on this below)—with the exception of certain retirement accounts: Individual Retirement Accounts (IRAs), 401(k)s and similar profit-sharing plans, self-directed Keogh Plans, and Section 457 Deferred Compensation Plans.

Secondly, FDIC insurance covers up to a set amount of funds in those accounts. In general, the FDIC will cover up to $250,000 per type of account, per account holder, per bank. However, there are sometimes exceptions to this $250,000 coverage limit. For instance, the FDIC determined to protect all deposits at Silicon Valley Bank to stop a wider financial fallout—though you can’t count on these extra protections always being the case.

As the FDIC points out, “No depositor has ever lost a penny of insured deposits since the FDIC was created in 1933.” If you bank with an FDIC-insured bank, your money in your deposit accounts is safe and you will have access to it, even in the event of a failure.

A bank failure means that the bank was officially closed by a federal or state banking regulatory agency, after examining their financial obligations and deposits. When this happens, you may very briefly lose access to your funds, but you’ll almost always have full access to your insured funds again by the next business. There are two ways the FDIC will make good on this promise: by providing each depositor with a new account of equal value at another insured bank or by issuing a check to each depositor for the insured balance of their account at the failed bank.

While banks do occasionally fail, due to protections like FDIC insurance, a bank is still the safest place to keep your money. Keeping your money at home leaves it vulnerable to losses from fire or natural disaster, as well as theft. In fact, only about $200 in cash is covered by homeowners’ insurance. Not only is your money safe, when you deposit it at a bank, it can grow. When you use a FDIC-insured savings account, you can earn interest on your balances, keeping up with inflation and building your nest egg.

As we mentioned above, the FDIC only insures deposit accounts. In fact, another major purpose of the Banking Act of 1933 that established the FDIC was to separate commercial and investment banking. This is also why most banks don’t offer investment products, except through a specific wealth management services department, like our Investment Services at CS Bank.

Examples of financial accounts that are not covered include stocks, ETFs, municipal securities, annuities, cryptocurrency assets, and bond investments*. Additionally, safe deposit box contents are also not covered. However, retirement accounts generally are covered, up to the usual limits—another reason why using a retirement plan to build your nest egg is crucial to ensuring a secure future.

*While not FDIC-insured, U.S. Treasury bills and bonds are backed by the full faith and credit of the U.S. Government.

In addition to understanding the basic coverage guidelines we’ve discussed above, there are a few ways to be sure your account is protected:

Understanding how your accounts are covered can be tricky, especially if you have multiple kinds of the same account. Let’s say, for example, you have 3 CDs totaling $275,000. If they are all held at the same bank, the FDIC will cover the first $250,000 of those CDs' total funds, but not the remaining $25,000. However, if they are joint accounts owned with someone else, like your spouse, your coverage extends to up to $500,000 for the two account holders (or up to $250,000 per person). And because the FDIC covers each bank independently, if one CD is at a different financial institution, that CD will be protected separately (up to $250,000 per person).

If you plan on having a high balance in a CD, rest-assured there are options you can use to make certain that the full balance is protected. At CS Bank, we offer the Certificate of Deposit Account Registry Service® (CDARS®), which gives customers access to multi-million-dollar FDIC insurance on your Certificates of Deposit. With CDARS®, your funds are spread across deposits at network banks, meaning that no more than $250,000 is held at one institution. However, on your end, it functions as elegantly as a single CD: you’ll work only with us to open and close your account, you’ll receive one account statement, and only one tax form.

In addition to utilizing CDARS®, there are other things you can do to make sure your savings are safe. An important first step is to talk to a wealth manager about diversifying your savings and investments, using a mix of FDIC-insured products, low-risk investing tools (like government-issued bonds), in addition to those more risky, high-yield investments.

You deserve the security of knowing that your hard-earned money will be there when you need it. At CS Bank, all our deposit accounts are federally-insured, and we’ll work with you to ensure that you maximize your protections. From FDIC-Insured Checking Accounts and Money Market Accounts to Savings Accounts and CDs, we have a variety of account options to meet your financial needs.

CS Bank has a 5-star rating by Bauer Financial, the highest rating a financial institution can earn in America, and we’re proud to be your trusted banking partner in Northwest Arkansas and Southwest Missouri. Stop by one of our branches in Eureka Springs, Berryville, Harrison, Huntsville, Holiday Island, or Cassville to learn more or open an FDIC-insured bank account, today!