FDIC Insurance Explained: What’s Protected, What Isn’t, and How to Stay Fully Covered

Practical overview

The Federal Deposit Insurance Corporation (FDIC) protects depositors against the loss of their insured deposits when an FDIC-insured bank or savings association fails. The core promise is simple: if an FDIC-insured bank goes out of business, the FDIC will either move your insured deposits to a healthy bank or pay you directly, up to the limit allowed by law. The current standard insurance amount is $250,000 per depositor, per insured bank, per ownership category. Understanding the phrase “per depositor, per bank, per category” is the key to using the rules to your advantage—and to avoiding false comfort about assets that are not covered (like stocks, mutual funds, crypto, or the contents of a safe deposit box).

FDIC coverage is automatic and free; you do not need to apply, opt in, or purchase a policy. Coverage begins the moment the bank accepts your deposit and records it on its books. If your money is at a credit union rather than a bank, the parallel insurer is the National Credit Union Administration (NCUA), which has similar limits and categories but is a separate system.

What is covered (and what is not)

Because many banks sell investments alongside deposit accounts, it is critical to confirm whether a given product is a deposit. The phrase “not a deposit, not FDIC insured” is your red flag that you are outside the FDIC umbrella.

The $250,000 rule—how the limit really works

FDIC insurance is calculated across three dimensions:

1. Per depositor: each person or legal entity is counted separately.
2. Per insured bank: your balances at one FDIC-insured bank are separate from balances at another FDIC-insured bank.
3. Per ownership category: funds in different legal ownership forms at the same bank can be insured separately (e.g., individual, joint, certain retirement accounts, revocable trust/POD, business accounts).

Thus, a single person can have well over $250,000 insured legally by spreading funds across banks and categories. The flip side: combining multiple branded apps that park funds at the same partner bank can accidentally put you over the limit without realizing it.

Ownership categories—what they mean and how coverage stacks

1) Single (individual) accounts

Accounts titled only to one person (no beneficiaries) are insured up to $250,000 per depositor, per bank. This category includes checking, savings, CDs, and MMDAs in your name alone.

Example: Taylor holds $240,000 in a savings account and $30,000 in a CD at Bank A, both titled only to Taylor. Total = $270,000. Only $250,000 is insured; $20,000 is uninsured. Moving the CD to Bank B (or adding a qualifying ownership category) restores full coverage.

2) Joint accounts

Joint accounts owned by two or more people (with equal withdrawal rights) are insured up to $250,000 per co-owner, per bank. The limit applies to the sum of a person’s shares across all joint accounts at the same bank.

Example: Alex and Jordan hold a joint savings account with $400,000 at Bank A. Coverage = $250,000 for Alex’s share + $250,000 for Jordan’s share = $500,000 insured. If they also have a second joint checking with $200,000, the joint total is $600,000, still fully insured because each person’s aggregate joint share (assume 50/50) is $300,000, exceeding the $250,000 limit; in that case, $50,000 per person is uninsured unless funds move banks or categories. If they add Sam as a third equal co-owner, coverage increases to $750,000 assuming proper titling and equal rights.

3) Certain retirement accounts

IRAs and certain self-directed retirement accounts that hold bank deposits (not securities) are insured up to $250,000 per depositor, per bank, separate from single and joint categories. Investments within an IRA that are securities are outside FDIC coverage; only the deposit portion counts.

4) Revocable trust (including POD/TOD)

Payable-on-death (POD or ITF/TOD) accounts and formal living trusts that are revocable can multiply coverage based on the number of unique beneficiaries. For five or fewer beneficiaries, coverage is generally $250,000 per owner, per unique beneficiary, per bank.

Example (simple POD): Casey opens a single-owner POD savings titled “Casey POD to Pat and Riley” with $500,000 at Bank A. Coverage = $250,000 × 2 beneficiaries = $500,000 insured. If Casey adds a third beneficiary, coverage rises to $750,000. For complex trusts with >5 beneficiaries or unequal shares, special rules apply; professional review is wise.

5) Irrevocable trust accounts

Irrevocable trust deposits are insured up to the greater of (a) $250,000 for the combined non-contingent interests of each unique beneficiary or (b) $250,000 for the trust as a whole if interests are contingent. Because many irrevocable trusts have contingencies, the effective insurance can be much less than depositors expect.

6) Business accounts

Corporations, partnerships, and unincorporated associations receive up to $250,000 per legal entity, per bank, separate from the owners’ personal accounts. The entity must be validly existing and operate independently (not a mere “alter ego”).

7) Government, employee benefit, and other special categories

Public units (municipalities, school districts) and certain employee benefit plans have unique calculations. Mortgage servicing accounts and some escrow accounts can receive pass-through coverage when recordkeeping requirements are met, insuring the underlying owners rather than the intermediary.

Pass-through coverage and “where your money really lives”

In modern banking, your money may be swept or custodied through layers: a brokerage cash sweep to one or more banks, a fintech app pooling client funds in omnibus accounts, or a prepaid card program using an issuing bank. FDIC pass-through coverage protects the ultimate owners if—and only if—three conditions are satisfied:

1. The funds are truly deposited at an FDIC-insured bank.
2. Records at the bank and intermediary clearly identify the agency or custodial capacity and list the beneficial owners and balances (directly or via sub-ledgers).
3. The deposits would otherwise be legal deposits eligible for insurance (e.g., not securities).

When pass-through applies, each customer’s share at each bank is aggregated with the customer’s other deposits at that same bank, within the relevant ownership category. This is where unintentional over-the-limit exposure can occur: if two different apps sweep your cash to the same partner bank, your balances combine for insurance purposes.

Brokered CDs and multi-bank programs

Brokerage platforms often offer brokered CDs issued by many banks. Each CD is insured by the issuing bank, so spreading CDs across multiple banks can legitimately increase insured coverage. If, however, you hold multiple CDs from the same issuing bank—directly or through different brokers—those balances will be aggregated within the same ownership category for the $250,000 limit.

Cash sweep programs that distribute funds across a network of banks can also increase coverage, provided you monitor the bank list and opt out of institutions where you already bank directly to avoid unintended aggregation.

How the FDIC pays when a bank fails

When a bank is closed by its chartering authority (state regulator or the OCC), the FDIC becomes receiver. It typically announces the failure on a Friday and, by the next business day, deposits are either transferred to an acquiring bank or the FDIC provides direct payout. For insured balances, customers usually regain access within one business day. For uninsured amounts, depositors receive a receivership certificate and may later receive dividends as the FDIC liquidates the failed bank’s assets; recoveries are uncertain and may be partial.

Official checks (cashier’s checks, etc.) issued by the failed bank are generally treated as insured deposits if outstanding at failure. Loan customers continue to owe their loans; a bank failure does not forgive debts. Safe-deposit boxes are not insured, but the receiver coordinates secured access and transfer.

Examples—putting the rules to work

Example A: Individual plus POD beneficiaries

Renee keeps $220,000 in an individual savings at Bank A and wants to park an additional $400,000 there without exceeding FDIC limits. Renee opens a separate “Renee POD to Lee and Maya” account and deposits $400,000. Coverage at Bank A becomes: $250,000 for the individual account (with $-0- uninsured if kept ≤$250k) and $500,000 for the revocable-trust (POD) account ($250,000 × 2 beneficiaries). Renee is fully insured up to $750,000 across the two categories at the same bank.

Example B: Joint account math

Chris and Devon keep $520,000 in a joint savings at Bank B. Each co-owner’s share is presumed 50%, so each has $260,000 exposure in the joint category at that bank, leaving $10,000 uninsured per person. Solutions: move $20,000 to another bank, add a third co-owner (if appropriate), or open a qualifying POD account that creates a separate category.

Example C: Business vs personal

Pat owns a small LLC and keeps $300,000 in the company operating account at Bank C, plus $250,000 personally in a CD at the same bank. Because the entity is distinct and properly titled, Pat’s business funds are insured up to $250,000 separately from the personal CD. The extra $50,000 in the business account is uninsured unless moved or redistributed to another bank.

Example D: Fintech sweep collision

Jamie uses two fintech apps for “high-yield cash.” Both sweep deposits into the same partner bank, Bank D, under pass-through structures. Jamie’s balances of $170,000 in App 1 and $130,000 in App 2 are aggregated at Bank D for the single-owner category, totaling $300,000; $50,000 is uninsured. The fix is to opt out of Bank D on one app or transfer funds to a second partner bank so each bank exposure stays ≤$250,000.

Risk controls and best practices for depositors

• Inventory your banks and categories. List every bank where you hold deposits; map balances by ownership category (single, joint, retirement, trust, business). This alone catches most over-the-limit exposures.
• Watch for hidden aggregation. Read disclosures for cash sweeps, brokered CDs, prepaid programs, and fintechs. Identify the actual bank names behind the brand.
• Prefer direct titling for trusts and PODs. Use precise titles (e.g., “Alex POD to Sam and Jude” or “The Morgan Revocable Trust, Alex Morgan as trustee”). Keep beneficiary lists updated and consistent with your estate plan.
• Separate business from personal. Use a legally distinct entity and avoid commingling. FDIC insurance hinges on real separateness.
• Confirm coverage before large closings. Real-estate escrow and IOLTA/attorney trust accounts can qualify for pass-through coverage, but meticulous records are essential. Ask the institution for a per-bank breakdown.
• Understand product differences. A bank MMDA is a covered deposit; a money market mutual fund is not. CDs are covered; broker-dealer cash in a margin account might be protected by SIPC (not FDIC) with different limits and scope.
• Keep contact details current. In a bank failure, rapid payout relies on accurate records. Out-of-date addresses or beneficiary designations slow the process.

Edge cases and myths

• “FDIC covers wire fraud.” No. FDIC protects against bank failure, not fraud losses. Banks may reimburse certain unauthorized transfers under other laws or policies, but that is separate from FDIC insurance.
• “My safe deposit box is insured.” No. The box is a rental of space; contents are not FDIC-insured.
• “Money at a branch abroad is covered.” Deposits must be on the books of a U.S. branch of an FDIC-insured bank to be covered.
• “Unlimited insurance is available for checking.” A temporary program for noninterest-bearing transaction accounts ended years ago; today the $250,000 limit applies unless a program uses multiple banks to expand coverage.
• “My IRA is fully insured.” Only the deposit portion of an IRA held at a bank is FDIC-insured, and it has its own $250,000 cap. Securities in the IRA are not FDIC-insured.
• “Adding beneficiaries always increases coverage.” For revocable trusts/POD, beneficiaries must be eligible (natural persons or qualifying charities/nonprofits), and some complex or unequal-share trusts invoke different rules. Sloppy titling can void the intended boost.

How to verify a bank and calculate your limits

Before placing large balances, verify that the institution is an FDIC-insured bank (not just a brand or program manager) and identify its FDIC certificate number. If you use brokered CDs or sweep programs, obtain the list of destination banks and the per-bank allocation. Many institutions provide a coverage report that shows which parts of your cash are insured where. Keep printed or saved copies of such reports—especially around month-end or before a major transaction—so you have evidence of your coverage position if conditions change quickly.

Conclusion

FDIC insurance is one of the most reliable consumer protections in finance, but it protects only deposits—and only up to the rules’ limits. The working formula is straightforward: $250,000 per depositor, per insured bank, per ownership category. Use categories intentionally (single, joint, retirement, POD/trust, business) and spread large balances across different banks or network programs when needed. When dealing with brokered CDs, sweep accounts, fintechs, or escrow structures, focus on the actual bank(s) of record and whether you qualify for pass-through treatment. Finally, remember that FDIC coverage is not a cure-all for fraud, investments, or safe-deposit box risks. With a clear map of where your money sits and how it’s titled, you can hold substantial cash positions while staying fully insured—and you’ll know exactly what will happen if your bank ever fails.