Putting your money in a bank is certainly a lot safer than hiding cash somewhere in your home. Nevertheless, banks can fail or get robbed. That’s important to the banker, but it might not matter to you because your deposits are probably insured. But beware: there are situations in which some of your assets aren’t covered by insurance and splitting them between two or more banks is a good idea.
The Federal Deposit Insurance Corp. insures the money you put into savings accounts, checking accounts certificates of deposit and money market deposit accounts up to a maximum of $250,000. The insurance coverage applies to the total amount in all of your bank accounts in a single institution combined, not to each individual account. If you put all of your money into these kinds of accounts at one bank and the total exceeds the $250,000 limit, the excess isn’t safe because it is not insured. Essentially, accounts owned by a single owner are insured up to $250,000 per institution; accounts owned by joint owners are insured up to $250,000 per joint account holder; and investment accounts like IRAs are insured up to $250,000 per account holder (against the bank's failure -- not against investment losses.)
The FDIC divides accounts into categories based on the method of ownership. For example, an account is in the single accounts category if it has a single owner and there is no beneficiary named if the account owner dies. If you and your spouse jointly own bank accounts, they are in the joint ownership category. Ownership categories are important because having accounts in more than one category expands your FDIC insurance coverage. Some other examples of ownership categories are retirement accounts such as IRAs, irrevocable trusts and revocable trusts.
If you own accounts in more than one ownership category, the amount you have in one category does not affect your insurance coverage for accounts in other categories. It’s pretty easy to determine if ownership categories make it safe to have all your money in one bank. Divide up the accounts you have at a bank into ownership categories. Suppose you have an IRA with a balance of $150,000. You share a checking account, CDs and a savings account with your spouse. Added up, these total $700,000. You can ignore the IRA because it is in a different ownership category and is insured up to $250,000. However, your joint ownership accounts exceed the $250,000 per person limit -- for a total of $500,000. The extra $50,000 in your $550,000 join savings account isn’t insured, so it is not entirely safe. You might want to move it to another bank where it will be insured.
Some of the financial products your bank offers aren’t insured by the FDIC. Annuities and life insurance policies are two examples. Money you keep in a safety deposit box is another. Your bank may offer an insurance policy for safety deposit boxes, or you can buy fire and theft insurance from an outside insurer. You might also have a brokerage account through your bank. Cash, stocks, bonds and other securities in a brokerage account are not insured by the FDIC. Money you put into investment securities is always at risk to some degree, but that is one of the characteristics of this type of investment. Making such investments only though your bank doesn’t make your money any more or less safe
The FDIC insures bank accounts, but accounts held at other types of financial institutions are insured by other agencies to similar limits. Credit unions, for example, are insured through the federally financied National Credit Union Administration, or NCUA.
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