What Is FDIC Insurance?

Most likely you have heard about a bank being “FDIC-insured,” but what exactly does that mean, and how does it protect your money?

FDIC stands for Federal Deposit Insurance Corporation. It is an independent federal agency that was created during the Great Depression to restore trust in the American banking system. Its purpose is to protect bank deposits in member financial institutions in the unlikely event of the bank’s failure.

FDIC insurance covers both the principal and accrued interest in a bank account, up to $250,000 per depositor, for each ownership category in any FDIC-insured bank where money is deposited in the event that the bank fails.

When you open a deposit account at an FDIC-insured bank, you are automatically covered—you do not need to apply for it.

What Accounts Are Insured?

The following are the most common examples of deposit products insured by the FDIC:

• Checking accounts
• Savings accounts
• Money market deposit accounts
• Certificates of deposit (CD)
• Prepaid cards (assuming certain FDIC requirements are met)

FDIC insurance does not cover financial products including stocks, bonds, mutual funds (which are covered by the Securities Investor Protection Corporation (SIPC), crypto assets, life insurance policies, annuities, municipal securities, safe deposit boxes or their contents, or U.S. Treasury bills, bonds, or notes, which are backed by the full faith and credit of the U.S. government.

Maximizing FDIC Coverage

While the limit for FDIC coverage is currently $250,000 per depositor, per bank, in each account ownership category, there are ways in which to increase your FDIC coverage.

It’s possible—and convenient—to get increased coverage through an insured cash sweep program, which exist to protect depositors and their money by maximizing FDIC insurance and by limiting deposit exposure in a single bank. Through this type of program, deposits that exceed FDIC insurance coverage are “swept into” one or more FDIC-insured banks as a way to insure the entirety of a depositor’s balance.

How Janney Insured Sweep Works

Utilizing multiple banks, Janney's Insured Sweep Program seeks to provide FDIC insurance coverage up to $2,500,000 for an individual account; $5,000,000 for joint accounts; and $2,500,000 for retirement and corporate accounts.¹

You can also boost coverage by opening accounts in different ownership categories. This way you’ll get up to $250,000 in coverage for each category, even within the same bank.

Here’s how ownership categories impact the amount of FDIC insurance coverage you may be entitled to:

• Single accounts are owned by one person, without named beneficiaries, including checking accounts, savings accounts, money market deposit accounts and CDs. This also includes business accounts in which one person is the sole proprietor. All single accounts owned by the same person at the same insured bank are added together and insured up to $250,000.
• Joint accounts are owned by two or more people, without named beneficiaries. The FDIC insures $250,000 per person in joint accounts (for a total of $500,000) and divides money equally among owners for this purpose. To qualify, owners must have equal rights to make withdrawals, as well as sign the deposit account signature card (unless the account is a CD).
• Revocable trust accounts are owned by one or more people that identifies one or more beneficiaries who will receive the deposits upon the death of the owner(s). All revocable trust accounts owned by the same person at the same insured bank are added together, and the owner is insured up to $250,000 per beneficiary to a maximum of five beneficiaries ($1,250,000).
• Irrevocable trust accounts are held in connection with an irrevocable trust established by statute or a written trust agreement. The owner contributes deposits or other property to the trust and gives up all power to cancel or change the trust. These accounts typically have contingent interests which result in the trust being insured for a maximum of $250,000, regardless of the number of beneficiaries designated. However, the non-contingent interests of a beneficiary in all irrevocable trusts established by the same owner and held at the same insured bank are added together and insured up to $250,000.
• Corporation, partnership, or unincorporated association account are deposits owned by corporations, partnerships, and unincorporated associations, including for-profit and not-for-profit organizations. All deposits owned by these at the same bank are added together and insured up to $250,000, separately from the personal accounts of the owners or members.

If A Bank Fails

If a bank fails, Federal law requires the FDIC to make payments of insured deposits "as soon as possible" upon the failure of an insured institution.² This means you could potentially have access to your money within two business days after your bank's closure. Your account might remain at your current bank, which will have been taken over by the FDIC, or it might be transferred to another FDIC-insured institution.

Excess cash balances exceeding the aggregate FDIC insurance Program Limits ($2,500,000 for individual accounts and $5,000,000, for joint accounts) will continue to be deposited into additional Program Banks so long as such Program Banks have capacity to accept the deposits. As stated previously herein, a government money market fund may be utilized when banks are at capacity and no longer accepting cash deposits which could impact the amount of FDIC insurance coverage. The fund is not FDIC-insured but is covered by SIPC up to applicable limits.

As always, you should consult with your Financial Advisor and/or estate planning attorney before making changes to your estate plans.