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How US banks protect your money
Find out what accounts are insured up to the $250,000 limit and how to safeguard your money.
What's in this guide?
- What is FDIC insurance?
- Is my money protected if I have multiple accounts with different banks?
- What if I have joint accounts?
- What happens if my bank goes bankrupt?
- Compare top FDIC-insured savings accounts
- How effective is FDIC deposit insurance?
- How do banks make money?
- How do banks go bankrupt?
- Vulnerabilities of bank accounts
- Bottom line
We all know that keeping your money in a bank account is much safer than stuffing it in your mattress. But what happens to your money if the bank were to go bankrupt? Learn more about the Federal Deposit Insurance Corporation (FDIC) and how it protects your deposits in FDIC-insured checking, savings, money market and CD accounts.
What is FDIC insurance?
FDIC insurance reimburses you for up to $250,000 in insured deposits if your bank were to collapse or fail. All FDIC-insured institutions pay insurance premiums to the Federal Deposit Insurance Corporation (FDIC), which is how your money is guaranteed.
FDIC deposit insurance limit
The $250,000 limit applies per depositor, per institution and per ownership category. But what does that mean exactly? Ownership category simply refers to whether the account is owned by one person (single) or is shared (joint). Depending on the size of your deposits, it might make sense to hold accounts at different institutions to ensure that all of your money is covered.
Consider the scenario in the table below. If you hold $200,000 in savings and CDs and $100,000 in checking, you would lose $50,000 if your bank failed.
|Savings account deposit||$100,000|
|CD account deposit||$100,000|
|Checking account deposit||$100,000|
|Total of uninsured deposits||$50,000|
Is my money protected if I have multiple accounts with different banks?
Yes — as long as your deposits don’t exceed $250,000 at each bank. Let’s say you have $200,000 in savings and CDs at one bank and $200,000 in your checking account at a different bank. In the event that both banks failed, all of your money would be insured.
|Bank 1: Savings account deposit||$100,000|
|Bank 1: CD account deposit||$100,000|
|Bank 2: Checking account deposit||$200,000|
|Total of uninsured deposits||$0|
What if I have joint accounts?
Let’s say you have $200,000 in savings and CDs and $100,000 in a joint checking account, though all accounts are at the same bank. If the bank were to fail, all of your money would be insured since you hold less than $250,000 in each ownership category.
|Single account: Savings account deposit||$100,000|
|Single account: CD account deposit||$100,000|
|Joint account: Checking account deposit||$100,000|
|Total of uninsured deposits||$0|
Do I need to apply for FDIC deposit insurance?
No. FDIC deposit insurance automatically applies to deposits at FDIC-insured financial institutions, so you won’t need to apply or take any further steps. As long as your funds are deposited at an institution that is FDIC-insured, you will be covered for up to $250,000 in the event that the institution fails. FDIC deposit insurance even applies to people who are not residents or even citizens of the US, as long as the deposit is made at an FDIC-insured institution.
How do I know if an institution is FDIC-insured?
FDIC-insured institutions often display an FDIC sign at branches, but you can also call the FDIC or use the BankFind tool on the FDIC website, which lists all FDIC-insured institutions.
What types of accounts are covered by the FDIC?
What happens if my bank goes bankrupt?
Will you get your money back if your bank goes bankrupt? The short answer is yes. If your institution is FDIC-insured and it goes bankrupt, you are protected so long as your account balance doesn’t exceed $250,000.
One of two things usually happens when your bank goes bankrupt:
- The FDIC tries to sell all of the failed bank’s deposits and loans to a more stable institution. If this happens, your account is transferred to the new bank and you keep doing business as usual.
- If the FDIC can’t find another bank to absorb the failed institution, you receive a check in the mail for your FDIC-insured deposits, usually within a few business days of your bank’s closing.
If for some reason the FDIC needs more information from you before it releases your deposit, it will send you a written notice by mail.
Do I still pay my mortgage if the bank goes bankrupt?
Yes. If your financial institution goes under, your mortgage is sold to a more stable lender. In most situations, the terms of your agreement remain the same, but you make payments to the new institution.
Top 25 FDIC-insured banks
There are many US-owned banks and foreign subsidiaries that are covered by FDIC deposit insurance. Here are the top 25 FDIC-insured financial institutions by deposits held:
2. JPMorgan Chase Bank, National Association
3. Wells Fargo Bank, National Association
4. Citibank, National Association
5. US Bank National Association
6. PNC Bank, National Association
7. TD Bank, National Association
8. Capital One, National Association
9. Branch Banking and Trust Company
10. SunTrust Bank
11. Charles Schwab Bank
12. HSBC Bank USA, National Association
13. The Bank of New York Mellon
15. KeyBank, National Association
16. Fifth Third Bank
17. Morgan Stanley Bank, National Association
18. Regions Bank
19. Manufacturers and Traders Trust Company
20. Citizens Bank, National Association
21. MUFG Union Bank, National Association
22. Ally Bank
23. State Street Bank and Trust Company
24. The Huntington National Bank
25. BMO Harris Bank, National Association
Compare top FDIC-insured savings accounts
How effective is FDIC deposit insurance?
The FDIC was created in 1933 to promote public confidence in the US banking system and has issued billions of dollars in payouts since its inception. In fact, there hasn’t been a single depositor that has ever lost a penny of insured deposits since the FDIC was created, despite more than 500 failures since 2000 alone. Here are a few of the most recent:
- Washington Federal Bank for Savings
- The Farmers and Merchants State Bank of Argonia
- Fayette County Bank
- Guaranty Bank (aka BestBank in Georgia and Michigan)
- First NBC Bank
- Proficio Bank
- Seaway Bank and Trust Company
- Harvest Community Bank
- Allied Bank
- The Woodbury Banking Company
How do banks make money?
There are a few different ways banks make money.
- Lending. Banks take the money you keep in your checking, savings, CD, and money market accounts and lend it out to others in the form of home loans, auto loans, student loans and more. Even if the bank pays you a 2% APY, it may be making anywhere from 5% to 17% on loans and credit cards.
- Bank fees. Financial institutions make a killing off of the accountholder fees it charges for monthly maintenance, overdrafts, ATM usage, paper statements, early withdrawals from CDs, and so on.
- Optional services. Some banks offer additional services, such as investment management, safety deposit boxes and payment processing for businesses. All of these extras bring in revenue for the bank.
- Interchange fees. When you use your debit card to buy something, the store pays an interchange fee to your bank and the store’s bank, usually 21 cents plus 0.05% of the total transaction.
How do banks go bankrupt?
Banks typically fail when they can no longer meet their obligations to depositors. Some common reasons include:
- They lend out too much money. When banks don’t keep enough cash on hand, they may have to borrow money from the Federal Reserve or another bank. If the bank doesn’t have a good lending record or strong collateral, it could risk failing.
- Lending is too risky. Loans are often the biggest moneymaker for banks. If they lend to risky individuals or businesses who can’t make repayments, it could create problems that lead to the bank’s demise.
- Funding issues. Banks have a long list of assets on their balance sheets. If they get in a position where they can’t repay their debts, it could fail.
- Significant shifts in the market. When banks don’t plan for economic downturns, it can lead to huge losses that force it to close its doors.
Vulnerabilities of bank accounts
Even though your money is often protected by FDIC deposit insurance, bank accounts still have a number of vulnerabilities.
- Fraudulent activity. It’s important to keep an eye out for suspicious behavior both online and in public. You should never give out your bank account information (account number, PIN, etc.) or use your credit card on websites you do not trust. If someone gets a hold of your bank account or credit card information, you should contact your bank immediately.
- Mistakes. Mistakes happen. Bank or merchant errors can lead to you being overcharged or incurring unnecessary fees. Check your statements and keep electronic or paper copies for reference, and call or visit your bank if you think there is an error. Some banks offer text message alerts that can help you stay on top of your account activity.
- Phishing and other online scams. Phishing scams and malware can lead to your account being compromised, so it’s important to keep an eye out for any suspicious behavior when you’re online. Avoid any links, sketchy websites or email attachments from unfamiliar sources, as scammers can set up fake websites and viruses to steal your information.
- Hacking passwords. With online banking becoming more popular every day, it’s even more important to make sure your passwords are secure. You should always create strong and unique passwords with a mix of upper- and lowercase letters, numbers and special characters if possible. You should avoid using your name or other obvious words and should never use the same password for multiple accounts. If it’s available, 2-factor authentication can provide an extra layer of protection to keep your account secure.
- Phone scams. Watch out for phone calls or text messages from phone numbers claiming to be your bank. Your bank will never contact you to ask for account information, so if you are unsure about the sender, you can hang up and call the bank directly to speak with customer service.
- ATMs. Scammers have been known to place fake card scanners called “card skimmers” over ATM card slots, which can lead to your account information being copied or stolen. Before using an ATM, it never hurts to wiggle the card slot to check if anything feels loose.
- Unsecured Internet access. Watch out for public Wi-Fi when accessing your account and check for https encryption. Hackers may connect to unsecured networks in hopes of intercepting your account information or passwords, so it’s best to do your online banking at home.
Most checking, savings, CD, and money market accounts in the US are offered by banks that carry FDIC insurance, so your money is protected if the institution goes belly up. Generally speaking, that assurance frees you up to focus on comparing savings accounts that best meet your financial needs, like those that offer a competitive interest rate, low or no fees, low or no minimum balances and convenient ways to access your money.
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