How FDIC Bank Deposit Insurance Works

​FDIC insurance protects up to $250,000 per depositor, per deposit category, per insured bank. Let’s break that down.​

​Per depositor. Let’s say you have a checking account and your spouse has a checking account at the same bank. Each account is insured to $250,000, for a total of $500,000. FDIC insurance also covers joint accounts separately; the owners of the account don’t have to be related. Each co-owner is insured for $250,000 for his or her combined interest in all the joint accounts at the institution. A couple could each have personal checking accounts with $250,000 and a joint account with $500,000 at the same bank and be insured for a total of $1 million.​

Per deposit category. The FDIC insures 14 different types of deposits. The four most common categories are single accounts, joint accounts, trust accounts and certain self-directed retirement accounts, each insured up to $250,000 for each owner at the same bank. If you have a checking account with $250,000 and an individual retirement account worth $250,000 at the same bank, you’re insured for $500,000.​

Per bank. You could have $250,000 each at 10 FDIC-insured banks and be covered for $2.5 million. Bear in mind that credit unions are not covered by FDIC insurance; instead, the National Credit Union Administration backs credit union share accounts for $250,000 under similar rules. There are still a few savings and loan institutions, which are covered by FDIC insurance. The FDIC has a handy tool to tell you if it insures your bank, as well as one that tells you how much FDIC coverage you have.

How it works

​The FDIC has two ways to take over a troubled bank: It can merge the bad bank into a healthy bank or liquidate the bank entirely. The merger — actually a purchase and assumption — is the preferred method. Your accounts simply get shifted into the new bank. All direct deposits, including Social Security payments, will automatically be redirected to the deposit accounts at the acquiring bank.​

​Sometimes, however, the failed bank is in such serious trouble that the FDIC must liquidate it, and this was the case with Silicon Valley Bank and Signature Bank. In this case, the FDIC will pay you directly by check up to the insured balance in each account. Such payments usually begin within a few days after the bank closing.​

​If you have more money in the bank than FDIC insurance covers, you may wind up losing all of your uninsured deposits.​

Unlike with a purchase and assumption, however, any uncleared checks you’ve written will be returned, and any automatic deposits or payments may also need to be rerouted to a new bank. And, of course, you’ll need a new account to reroute those checks and deposits to.​

​Taxpayers will not be paying for the two banks’ failures. The FDIC is backed by payments made by member banks. The FDIC’s Deposit Insurance Fund totaled $128 billion as of the end of 2022 — about 1.3 percent of the assets it insures. When the banking system is stressed and bank failures spike, the FDIC can — and has — authorized special extra levies on banks to shore up the insurance fund. So far, no insured depositor has lost a dime since the FDIC’s creation.