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Deposit Insurance: How Banks and Credit Unions Protect Your Savings Account

A cornerstone of consumer banking protection, the Federal Deposit Insurance Corporation - commonly abbreviated and referred to as the FDIC - is an independent agency that oversees financial institutions in the U.S. 

They have covered every cent of insured cash for every bank failure since 1934. This coverage is a pillar of financial security for many Americans, but it isn’t always clear what it does.

Let’s start with what FDIC insurance covers, then we’ll look at how they step in when banks fail and why you want your high yield savings account to be FDIC-insured.

What does FDIC insurance cover?

One of the primary purposes of the FDIC is to protect consumer deposits from bank failure. They cover up to $250,000 per person (referred to as “depositors”) in eight different “ownership” categories. Those categories are:

  • Individual accounts
  • Joint accounts
  • Certain retirement accounts, like IRAs
  • Revocable trust accounts
  • Irrevocable trust accounts
  • Employee benefit accounts
  • Corporation/partnership/unincorporated association accounts
  • Government accounts

All of your deposits at a bank in a specific category are added together to determine how much FDIC coverage you have. Here’s an example for someone with multiple deposit accounts:

  • Individual checking account: $50,000
  • Individual savings account: $250,000
  • Joint savings account: $400,000 total ($150,000 contributed)
  • Individual Retirement Account (IRA): $200,000

In this scenario, there are three ownership categories: individual accounts, joint accounts, and retirement accounts. The FDIC will combine the balances in the individual checking account and savings account to determine coverage. The joint account will be split between the contributing parties based on ownership to determine coverage, and the IRA will be covered separately:

  • Individual accounts: $50,000 + $250,000 = $300,000
    • $50,000 not covered
  • Joint accounts: $400,000 - $250,000 = $150,000
    • $250,000 covered for other party
  • Individual Retirement Account (IRA): $200,000

If the bank were to collapse or fail, the FDIC would issue a payment of $600,000 for this account holder. The categories are an essential part of determining whether you should consider spreading your cash across different institutions. 

How does the FDIC help when a bank fails?

The FDIC provides oversight for financial institutions and facilitates the management of bank failures. As part of their commitment to consumer protection, the FDIC offers deposit insurance to banks and savings associations, and they work quickly for most deposits. 

It can take a few business days for some business and government accounts, but most consumers either see a check issued or a deposit to a new account at a different bank the next business day. In addition to paying back your deposit, they will also pay back the interest you are owed on the covered amount,  minimizing the risk to deposit holders and ensuring consumer confidence in the banking system.

The FDIC doesn’t cover investments or securities deposits, and they don’t cover credit unions specifically. However, the National Credit Union Association (NCUA) offers similar deposit insurance for share accounts to credit union members, and the Securities Investor Protection Corporation (SIPC) offers some cash protection for money held with securities firms that are in financial danger. SIPC doesn’t protect against investment loss associated with risk.

Is FDIC insurance important for a high yield savings account?

There’s a lot of comfort in knowing your cash is secure and protected. Investments are subject to gains and losses on the entire amount. Because the FDIC covers the interest owed on balances - even in a high yield savings account - there’s virtually no risk as long as your balances don’t exceed $250,000 per ownership category. 

With a high yield savings account, your money is securely tucked away, compounding interest daily, and isn’t subject to investment loss. 

Juno is working with FDIC-insured banks to offer competitive rates and exclusive benefits for our members. Add your voice to our 10,000+ member collective.

Juno Team

Written By

Juno Team

Juno came into existence to help students save money on student loans and other financial products through group buying power by negotiating with lenders. The Juno Team has worked with 90,000+ students and families to help them save money.


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