Building wealth is a big accomplishment that takes hard work and smart decisions. We lead our clients in organizing their financial world. A part of each of our clients financial planning is having emergency cash reserves. This often means having a decent amount of money in a high yielding savings account. Fortunately, FDIC insurance can offer peace of mind in this regard.
It acts as a safety net in case your bank encounters financial difficulties. Currently, most clients experience about $250,000 per depositor, per insured bank, for each account type. If your deposits go beyond that, there are ways to stretch your coverage further.
Tencap clients have access to a a high yield savings account with 2 million of FDIC coverage. (On a joint account). This allows our clients to have a place to park cash reserves without having to “game” the banks to have FDIC coverage.
Find out how to maximize FDIC insurance and keep your wealth safe and secure.
What is FDIC Insurance?
FDIC insurance is a federal policy that protects your funds if your bank fails. As an independent agency in the United States, the Federal Deposit Insurance Corporation (FDIC) offers this coverage. The standard FDIC insurance coverage for each account ownership category is up to $250,000 per depositor. The same amount applies to each insured bank.
For instance, if you maintain both a single ownership and a joint account at the same bank, the FDIC insures each up to $250,000 separately. Similarly, the agency protects your single ownership account at Bank A and another at Bank B up to the coverage limit.
FDIC insurance coverage limits
The following account types fall under the FDIC coverage:
- Checking accounts
- Savings accounts
- Money market deposit accounts (MMDAs)
- Negotiable order of withdrawal (NOW) accounts
- Time deposits or certificates of deposit (CDs)
- Official items issued by a bank, including cashier’s checks and money orders
Meanwhile, ownership categories include:
- Single accounts
- Joint accounts
- Certain retirement accounts like individual retirement accounts (IRAs)
- Trust accounts
- Employee benefit plan accounts
- Corporation, partnership, or unincorporated association accounts
- Government accounts
Exceptions to FDIC insurance
Note that FDIC does not insure all financial products, such as:
- Stock investments
- Bond investments
- Mutual funds
- Crypto assets
- Life insurance policies
- Annuities
- Municipal securities
- Safe deposit boxes or their contents
- U.S. treasury bills, bonds, or notes
Third-party brokers or insurance companies offer these products. Since they are subject to market risks, including potential loss of principal, the FDIC cannot guarantee them. Hence, always check for disclosures that clarify whether a financial product is FDIC-insured before investing.
5 Tips to Maximize FDIC Insurance
The changing economy makes it more important than ever to protect your hard-earned wealth. Here are ways to maximize FDIC insurance for your peace of mind.
If your financial advisor, and the custodian they use, does not have a way for you to have 2 million in coverage (on joint accounts) then you may end up having to explore coverage options yourself. If that does end up being your situation, here are some things to be aware of:
1. Open accounts in different ownership categories
The FDIC provides financial protection per depositor and bank for each account ownership category. So, consider different ownership types—such as individual, joint, and trust accounts—to increase your coverage.
Let us say you have $250,000 in a personal savings account. To extend coverage, you and your spouse can open a joint account at the same bank, which adds $500,000 in coverage ($250,000 per owner).
2. Spread funds across multiple banks
FDIC insurance limits are tied to each insured institution. If your deposits exceed $250,000 at one bank, consider opening accounts at other banks to stay fully covered.
If you have $500,000 in cash, you can deposit $250,000 in one bank and $250,000 in another to insure the full amount.
3. Utilize “brokered deposits” or cash management accounts
Some financial institutions offer brokered deposit programs or cash management accounts to help spread your funds across multiple FDIC-insured banks. They usually do it automatically.
Suppose you place $1 million into a cash management account with a brokerage. The program divides your funds into increments of $250,000 and deposits them into different partner banks. This lets you insure every dollar of your deposit.
FDIC insurance generally covers brokered deposits as long as your bank is financially healthy and follows the rules.
4. Structure trust and estate accounts strategically
FDIC insurance for revocable trust accounts can extend beyond $250,000 if you have multiple beneficiaries. Each is insured up to $250,000, offering additional protection.
If you have a trust account with four beneficiaries, you can collectively insure them for up to $1 million ($250,000 per person). You only need to structure your trust documents correctly to qualify for this extended coverage.
5. Leverage retirement accounts effectively
Certain retirement accounts, like IRAs, may have their own $250,000 FDIC insurance limits. Holding cash in an FDIC-insured bank through your retirement account lets you add another layer of protection.
You can keep $250,000 in an IRA savings account at Bank A and open a separate individual savings account for another $250,000. This way, you double your coverage while maintaining tax advantages.
Maximize Your Financial Coverage
Keeping your money in the bank lets you protect your finances, but inflation can quietly erode monetary values over time. While maximizing FDIC insurance coverage is crucial for safeguarding large deposits, it is just one piece of the puzzle.
It is equally crucial to evaluate the opportunity costs and explore efficient investment options that align with your risk tolerance when growing and preserving wealth.
Tencap Wealth Coaching is here to guide you through it all. We are a fee-based financial planning firm proudly led by a Certified Financial Planner®, Greg Black who specializes in helping clients like you make wiser financial decisions. We ensure that every penny you spend on our advisory services is worth it. Let us work together to build your wealth and secure your future.
Reach out to us today to learn more.
Nick Carrigan
Nick trains and develops families in creating, maintaining, and growing wealth. This includes educating clients on the science and academics of investing, comprehensive financial planning, and ongoing coaching to ensure discipline for a lifetime. Nick has seen this create incredible levels of freedom, fulfillment, and love for the families he works with.
