How Does The FDIC Work?
What Does The FDIC Cover?
Let’s begin by saying what FDIC does not cover. FDIC does not cover money placed in stocks, bonds, mutual funds, life insurance, annuities, U.S. Treasury obligations, or uninsured bank deposits. FDIC does cover up to $250,000 in deposits for one owner at one insured bank, but there are different categories of owners that may allow one to increase coverage.
Permanent Increase In FDIC Coverage Increased to $250,000
The Dodd-Frank Wall Street Reform and Consumer Protection Act signed by the President 21 July 2010, raised the standard maximum deposit insurance amount to $250,000. This makes permanent the temporary increase that was to expire 31 December 2013. The FDIC insurance coverage limit applies per depositor, per insured depository institution for each account ownership category. This means if the combined checking, savings, money market accounts and CDs for a single owner at one bank total $250,000 or less all deposits are insured; joint accounts would be covered for up to $500,000 (IRAs were already protected up to $250,000). The FDIC coverage is per bank, meaning if one owner has $250,000 deposited at ten different banks all deposits would be covered. Naturally, people should talk to their banker to ensure they are fully insured in their own situation.
Insuring More Than $250,000
FDIC coverage is limited to $250,000 at each bank per named single nonqualified account. So, typically an individual with $1 million in CDs would either need to go insurance-naked on $750,000 or open accounts at four different banks. But now ONE bank account can provide FDIC coverage on the whole million if the bank uses CDARS.
When Do Uninsured Depositors Get Paid?
Uninsured depositors may get a special Advance Dividend usually within 30 days after the bank closes. Every quarter FDIC, as the receiver, will determine the net proceeds available from converting failed bank assets and, if money’s available, pay out a Traditional Dividend until all the money’s gone.
Have Uninsured Depositors Always Received All Their Money Back?
No. For example, from 2001 through 2004 22 banks were taken over by FDIC and four of these banks failed to return 100 cents on the dollar on uninsured accounts when the final dividend was paid.