FDIC Insurance and Misconceptions

A lot of people who have bank accounts are following some wrong understandings when it comes to how the insurance (by the FDIC) works. Understanding why it is here and what it means to you is very important when it comes to maximizing your efficiency with bank accounts. For example, knowing how much you can actually deposit in to an account, and how to get around that maximum will make things much better if you are trying to put a lot of money in to the bank. This article is designed to help with just that: clarifying how things work and what they mean to the regular user.

Myth: The Insured Deposit Amount is Per Person or Per Account

I have heard both of these many times, and both of them are false. It is actually based on per person per account type. To help better understand this, I want to run through a few scenarios. This should help better illustrate what is going on and how it works:

  • You have (in your own name) a separate account at three different banks. You can be fully insured up to the federal amount on each of the three accounts
  • You have (in your own name) three accounts at one bank that are different types (like checking, savings and money market). You can be fully insured up to the federal amount on each of these three accounts
  • You have (in your own name) two savings and one checking account at one bank. You can be fully insured up to the federal amount of TWO of these accounts (since the second savings account would be mixed with the first one for insurance purposes)

What you should be taking away from this is that it is not the number of accounts you have, but rather where they are and what type they are. As long as they are of different types, you can have them all at one bank and still get the maximum insurance on each. Having more than one of the same type at one bank will merge those together. And having more than one of the same type but at different banks allows full insurance again.

Joint accounts. Joint accounts are interesting in that they essentially double the amount you are insured for. Being that it is one account with two people, both of you are insured for the full amount. This can get a bit confusing because we generally see it as being “per account,” but as stated near the beginning it is actually all based on per person per account, so this does make sense.

Why FDIC is Here

Another thing people seem to not understand is why we have the FDIC in the first place. After all, if we make a deposit to the bank then they have our money and should have no problems with finding a way to return it, right? Well, this is how we would see it in the most positive light, but it is not how it always ends up working. The problem also does not come from just banks crashing, but also from too many people needing to withdraw at once. Think about the stock market crash early in the 20th century. When this happened, everyone ran to their bank to withdraw all of their money. Of course, since everyone did this there was not enough time to scavenge it all together, and people ended up being left out. Those who got there first essentially won.

Well, the same thing could happen again in the future, and the FDIC is one way of helping protect it. In this case, were this situation to happen again your finances would still be there. I am not sure, though, how we would go about actually getting those funds back as I have never been faced with the problem. What matters to me is knowing that the money I deposit in to my account is safe and secure, and that I do not need to worry about it just magically disappearing due to fear or anything else. While I may never have to collect from FDIC, and I hope this never does happen, having that peace of mind is helpful. This is the opposite of having cash on hand, where it could be stolen or be lost due to severe weather and not have it insured at all. For me, security is everything.

Depositing Above the FDIC

A lot of people are also scared of depositing above the FDIC. What you need to keep in mind is that it is a little risky, in that anything above and beyond what you are insured for is not insured. At the same time, the chances of it going away when using a reputable bank are small as it is. Regardless, for people like me who love security, there are ways around it.

  • Set up multiple accounts at different banks. If you have this much money you are going to be putting in to bank accounts, the interest rates should not be what you are going for. If that is what you are hoping for, you are better off using it as investment money instead
  • Ensure that each account has some space before the cap. Keep in mind that interest adds up, and if you want to secure everything you have, keeping below the threshold even after the interest payments is important. Save a thousand or more as empty filler space in each account

These two things will make sure that everything you have is completely protected, and that the interest will not be lost either. But, you do need to take things a step further if you want to be efficient. Start up a spreadsheet with all of the accounts, balances, and any other important information you have for them. From time to time (maybe even monthly) update the spreadsheet with the latest balances. This will help keep up with your fortune in an easy manner, even though you are spread out across different banks.


The FDIC scares off a lot of people because people misunderstand how it works. Far too often people share their fears, and we find that they are just somehow being misinformed. Especially with matters that deal with finances, it is important to always know what you are doing, why you are doing it and whether or not it is the best path for you to take. When it comes to the FDIC, you can most definitely make things work out for you. It just takes a little more work than you might realize. With that said, if you follow the guidelines above you will have no problems with making it work for you. Just ensure that every bank you use is also FDIC insured. If they are not, you can run in to other problems.


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