Are you concerned about the safety of your bank deposits in the event of a bank failure?

Bank failures became more frequent after the 2008 financial crisis, as reported by the FDIC. It remains to be seen if the recent economic challenges brought on by the Covid-19 pandemic and rising inflation will have similar effects.

Fortunately, the federal government protects your money up to a certain limit if your bank closes. But what if your bank deposits surpass the FDIC coverage limits?

Discover how to safeguard excess bank deposits in this comprehensive guide.

Understanding FDIC Limits

The Federal Deposit Insurance Corporation (FDIC) is an independent federal agency that insures deposits at participating banks. FDIC coverage extends to $250,000 per depositor, per bank, across various deposit accounts such as:

• Checking accounts
• Savings accounts
• Certificates of Deposit (CDs)
• Money market accounts

For joint accounts with equal ownership, each account holder is insured up to $250,000, totaling $500,000 in FDIC coverage.

Use the FDIC’s Electronic Deposit Insurance Estimator (EDIE) to calculate coverage for your specific deposits. FDIC insurance is free and requires no paperwork.

What Happens When an FDIC-Insured Bank Fails?

If an FDIC-insured bank fails, its deposits are transferred to another FDIC-insured bank. If this isn’t possible, depositors receive a check from the FDIC for their insured deposits of up to $250,000 per person. So, what happens to deposits exceeding $250,000?

How to Secure Excess Bank Deposits Above FDIC Limits

Here are three strategies to protect excess bank deposits beyond the $250,000 FDIC limit:

Distribute Your Funds Across Multiple Banks

FDIC coverage applies per depositor, per bank. You can multiply your coverage by opening accounts at multiple banks. For example, with $400,000 in deposits, you could split the amount between two banks, placing $200,000 each. However, this method can be time-consuming and requires managing multiple bank accounts and statements.

Utilize the Certificate of Deposit Account Registry Service (CDARS)

CDARS is a network that divides CD deposits among various FDIC-insured banks, providing a more straightforward way to spread funds across multiple banks. CDARS offers a single statement, streamlining the process of managing excess deposits. Although CDARS doesn’t charge a fee, the CD rate you receive may be slightly lower than the market rate.

Choose Banks That Offer DIF Insurance for Excess Deposits

Depositors Insurance Fund (DIF) is similar to FDIC insurance but covers deposits exceeding the FDIC limit. DIF is available at FDIC-insured banks and is a private fund that doesn’t charge fees. One example of a bank that combines FDIC and DIF insurance is BankProv, which offers insurance, no monthly maintenance fees, and competitive yields.

Final Thoughts

Most individuals will always stay within the FDIC deposit limit. But just in case you ever need to exceed those limits, you know how to secure those excess bank deposits above the $250,000 limit.

Choosing a bank with FDIC and DIF insurance, like BankProv, is the simplest option to protect excess cash. Alternatively, you can open multiple bank accounts or use the CDARS service if you are willing to put in the extra effort.