Mortgage Insights Blog

The Federal Deposit Insurance Corporation (“FDIC”) is an independent agency of the federal government that protects against the loss of FDIC-insured deposits. The FDIC insures banks chartered by the United States government and most state banks. FDIC-insured banks are required to display an official FDIC sign where deposits are received. The FDIC’s website also has information to help consumers find out whether a specific bank or savings association is FDIC-insured.

What accounts does the FDIC protect and for how much?

The FDIC insurance protects deposits at an insured bank, up to the limit. Historically, the limit was $100,000, but Congress has temporarily increased the limit to $250,000. The $250,000 limit will expire on December 31, 2009, unless Congress enacts new legislation.

The insurance covers accounts with deposits like checking, savings, IRAs, money market deposit accounts, and certificates of deposits. The insurance does not cover investments like stocks, bonds, mutual funds, life insurance, or annuities. The insurance also does not apply to credit unions, although there is a separate federal insurance program for credit unions.

The insurance limits apply to all protected accounts within a single institution. All of an individual’s eligible accounts are added together and are only covered up to the limit. So, if you have three eligible accounts within the same bank containing $100,000 each, currently $50,000 would not be protected by the insurance. A "bank" includes all of the bank’s subsidiaries and branches for the purposes of determining the aggregate limit for an individual.

How do the limits work when personal and business accounts are held by the same bank?

As stated above, all of an individual’s personal accounts are aggregated to determine the limit for an individual. If an individual also operates a business that maintains accounts at the bank, the business accounts will be separately insured up to the applicable limit, so long as the business is a separate and distinct legal entity. So, if the business is a separate legal entity like a corporation or partnership, then the accounts will be insured separately from an individual’s account and subject to their own limit. In addition, subsidiaries of the business that are separate and distinct entities will also have separate deposit insurance for their bank accounts. Unincorporated associations that are a distinct legal entity will also have separate deposit insurance limits. However, an individual who maintains personal accounts as well as accounts for an unincorporated sole proprietorship at the same bank will have both his/her individual accounts and business accounts combined to determine the FDIC insurance coverage limit.

It is important to note that businesses and corporations will still have their accounts aggregated in the same manner as an individual for FDIC insurance purposes. So, a homeowner’s association that maintains two accounts (one for operational expenses, the other for reserves) will have both accounts combined for FDIC insurance. It will not matter that the accounts are designated for separate purposes.

How does the insurance apply to accounts with multiple owners?

Joint accounts, or deposits owned by two or more individuals, have separate insurance limits for each co-owner’s share of the account so long as certain requirements are met. These requirements are: (1) all co-owners must be people, not artificial legal entities like a corporation; (2) all co-owners must have equal rights to withdraw deposits from the account; and (3) all co-owners must sign the deposit signature card. The FDIC will assume the co-owners shares are all equal, unless the deposit record indicates otherwise. So, if two individuals maintain a joint checking account containing $10,000, $5,000 will be separately attributed to each individual for purposes of determining the FDIC insurance limit.

For additional information you can visit the FDIC’s website at www.FDIC.gov