Do You Have More Than $250,000 in the Bank? Take These Steps Now

Here's everything you need to know about FDIC protection limits.

For many Americans, the banking system is a bit like a car engine. When it's working, we don't think too much about what's going on under the hood. But when it goes wrong, we quickly have to learn about some of the inner workings of the machine.

In recent weeks, the failure of Silicon Valley Bank and Signature Bank have put the Federal Deposit Insurance Corporation (FDIC) insurance and its $250,000 limits into the spotlight. Both banks had large amounts of uninsured deposits that could have been lost if authorities hadn't stepped in and guaranteed them.

Moving forward however, if you've got sizable deposits in a bank that fails, authorities may not come to the rescue. Here are five steps to take to ensure your cash is covered.

1. Understand the FDIC insurance limits

FDIC insurance covers up to $250,000 per depositor, per bank, per ownership category. So, if you have a joint account with your significant other, it would be covered for up to $500,000 in the event of bank failure.

Understanding ownership categories is slightly more complicated. According to the FDIC, ownership categories include the following:

• ​​Single accounts
• Joint accounts
• Certain retirement accounts (This does not include stocks, mutual funds, or exchange-traded funds)
• Corporation/partnership/unincorporated association accounts
• Revocable and irrevocable trusts
• Government accounts
• Employee benefit plan accounts

Let's say you have a savings account, checking account, and certificate of deposit (CD) in your name at one single bank. Assuming your bank is FDIC insured, these would all fall under the ownership category of a single account and qualify for $250,000 in insurance. However, if you also had a qualifying individual retirement account (IRA) with the same bank, this would be covered for up to $250,000 in additional insurance as it's a different ownership category.

The FDIC's EDIE tool will help you calculate your coverage. Enter the amount you hold in each account to find out whether all your funds are protected.

2. Consider moving money to another bank account

If your funds are fully insured, you might not need to do anything else. However, if you have money that's not protected, you might want to explore other options. There are reports that Treasury officials are looking for ways to expand FDIC insurance to cover all deposits. But right now, it isn't clear how far the contagion from SVB's collapse will spread and if your bank fails, any uninsured deposits could be at risk.

One option is to move some cash to another bank or credit union. It's worth knowing that credit unions have their own form of insurance called the National Credit

Union Share Insurance Fund (NCUSIF), which gives you the same level of protection as FDIC insurance.

If you're worried about potential bank failure, check out our list of some of the safest banks in the U.S. You might also look for banks that offer sign-up bonuses for opening a new account. You'll likely have to deposit a certain amount and hold it there for a set amount of time. But if you're able to get extra cash for something you would have done anyway, so much the better.

3. Consider a joint account

If you are able to add another person to your bank account, it could double your FDIC coverage. A joint account is a separate ownership category. This means a couple could hold up to $250,000 each in individual accounts and additional $500,000 jointly in a savings account. This would give them a total of $1 million in joint coverage.

4. Look at brokerage accounts

Brokerage accounts are protected against institution failure by something called Securities Investor Protection Corporation (SIPC) insurance. This is similar to FDIC insurance, though SPIC insurance works a little differently. It covers up to $500,000 of certain assets held at member brokerage firms, including up to $250,000 in cash.

Zooming out a little, if you have money you don't plan to touch for the coming five to 10 years, a brokerage account could make sense for other reasons too. Savings and investments both play key roles in building financial security, but there's a limit on how much money you need to keep in the bank.

Once you have a well-stocked emergency fund and enough money to cover your near-term plans, it might make sense to invest any additional funds for the long term. The average annual return for the S&P 500 was 14.8% between 2012 and 2021, which is considerably higher than rates at even the best savings accounts. That said, there are no guarantees when it comes to investing, and there could be years when your portfolio loses value.

5. Investigate alternative insurance options

If none of the above options appeal, some companies offer ways to insure higher deposits. For example, you could look for a bank that's part of the Depositors Insurance Fund (DIF) as well as the FDIC. According to its website, all deposits above the FDIC limits at DIF member banks are covered, though all of those banks are based in Massachusetts.

WinTrust's MaxSafe program says it combines individual FDIC protections by spreading deposits across various community bank charters. This allows it to insure as much as $3.75 million per account holder. If you go this route, do your own research and make sure you understand exactly how the company will insure those higher amounts.

Bottom line

There's a lot of uncertainty around uninsured bank deposits right now. Start by finding out how much of your money would be covered in the event of failure. If you have excess deposits, don't rely on the government to step in. Look at what options might work best for your situation.