How to insure bank deposits beyond the FDIC limit

Bank failures don't happen frequently, but they do happen. So it's important to learn how to safeguard all your money under the FDIC insurance system.

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• The FDIC is a US government agency that insures deposits in case of a bank failures.
• The FDIC insures up to $250,000 per account owner, per ownership category.
• If you have more than $250,000, you'll need to take additional steps to protect your money.

Have you ever wondered what would happen to your money if your bank suddenly failed? Bank failures don't happen frequently, but they do happen. There were more than 560 of them between 2001 and early 2023. 

Fortunately, the FDIC provides deposit insurance, so if your bank does fail it probably won't be a total loss. But if you're holding a large sum of money at a single bank, you may need to take additional steps to protect your savings. 

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What is the FDIC?

The Federal Deposit Insurance Corporation is an independent US agency created by Congress after thousands of banks failed in the 1920s and 1930s. The FDIC oversees the banking industry and ensures financial institutions comply with consumer protection laws.

But the FDIC's primary job is to insure deposit accounts in case of a bank failure. If you open a checking account, savings account, money market account, or CD at an insured bank, your money is protected if the bank fails. 

The FDIC insures these accounts at each insured bank, including the principal and any interest earned. However, depositors with high balances need to be careful not to exceed the FDIC insurance limit.

How much does the FDIC insure? 

The FDIC insures up to $250,000 per account owner, per ownership category. That means you could qualify for more than $250,000 in coverage if you're a joint account holder or have accounts in more than one ownership category.

"Account ownership categories are single, joint, some retirement, irrevocable trust, employee benefit plan, corporate, unincorporated association, partnership, and government accounts," explains money coach and educator Ohan Kayikchyan. "Each FDIC member institution pays an insurance premium to the FDIC to cover the customers' deposits." 

The FDIC insures the following types of accounts:

• Checking accounts
• Negotiable order of withdrawal accounts 
• Savings accounts
• Money market deposit accounts 
• Certificates of deposit (CDs) 
• Cashier's checks, money orders, and other official items issued by a bank

The FDIC does not cover the following:

• Stocks
• Bonds
• Mutual funds
• Crypto assets
• Life insurance policies
• Annuities
• Municipal Securities
• Safe deposit boxes or their contents 
• US Treasury bills, bonds, or notes

What happens when an FDIC-insured bank fails? 

When a bank fails, the FDIC will protect depositors in one of two ways. If possible, the FDIC will attempt to arrange a sale of the failed bank to a healthy bank.

"In the event of a failed bank, the FDIC steps in as its 'receiver' and works to find an alternate, viable institution that will claim responsibility for its deposits," says William Bevins, a fiduciary financial advisor and CFP® professional. "The FDIC securely transfers money to another insured bank, enabling account holders access to a new account and ensuring that deposits remain safe."

If selling the failed bank isn't an option, the FDIC will pay depositors for the insured balance in their accounts. That means a customer with $250,000 or less in their covered accounts will be reimbursed in full. 

But this gets tricky for someone with more than $250,000 in their account. For instance, let's say you received a $325,000 inheritance and deposited it into a money market account. 

If the bank fails, you stand to lose $75,000 of your savings. So anytime you have more than $250,000 in an account, you'll need strategies to protect the excess funds.

5 ways to insure excess deposits above FDIC limits

If you have $250,000 or less at your current bank, there's nothing you need to do. If the bank is FDIC-insured, your money is automatically protected. But if your money exceeds the FDIC limits, here are five strategies to consider: 

1. Spread your deposits across different banks

"One option to get coverage above the $250,000 limit is to spread funds among multiple FDIC-insured banks, as each bank gets its own insurance limits," says Kayikchyan.

So if you receive a $325,000 inheritance, you can keep up to $250,000 at your current bank, and open an account at a different bank for the remaining $75,000. The only downside to this strategy is that you'll have to keep track of multiple accounts at different banks.

2. Use the Certificate of Deposit Account Registry Service

The Certificate of Deposit Account Registry Service (CDARS) allows you to access FDIC insurance on large deposits. With CDARS, you can access millions of dollars of FDIC coverage on your CD deposits.

The way it works is you invest your money with a CDARS network member and the money is divided into CDs issued by different CDARS banks. So if you invest $2 million with CDARS, it would be split into many different CDs, and each one is FDIC-insured.

3. Join a credit union

Putting some of your money in a credit union is another good way to protect yourself. Similar to the FDIC, the National Credit Union Association (NCUA) insures credit union deposits up to $250,000 per account holder, per ownership category. 

In addition to protecting your money, there are other benefits of joining a credit union. Credit unions often come with lower fees and higher interest rates on savings accounts. Credit unions also sometimes offer lower rates on lending products. 

4. Add a joint owner

A single account under your name alone is insured up to $250,000. But if you open a joint account with two or more owners, the funds are insured up to $500,000. So you can double the amount insured in your accounts by adding a joint owner.

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5. Open accounts with different ownership categories

Another way to protect your money is by opening accounts with different ownership categories. FDIC insurance applies per owner and ownership category. The following ownership categories are covered by the FDIC:

• Single accounts 
• Joint accounts 
• Certain retirement accounts, including IRAs
• Revocable trust accounts
• Irrevocable trust accounts
• Corporation, partnership, and unincorporated association accounts
• Employee benefit plan accounts
• Government accounts

So let's say you have a personal account with $250,000 and a business account with $100,000 at the same bank. Under this arrangement, both accounts are covered because the accounts were opened under different ownership categories. 

And if you have a large deposit you need to insure, it may be a good idea to set up a trust, according to Bevins.

"Each trust beneficiary would be insured for the full amount," he says.