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How can I expand my FDIC insurance?

November 01, 2013

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

FDIC insurance

Q: I've got a savings account that is approaching the $250,000 FDIC insurance limit. I like my bank, and I like the convenience of having my savings and checking account in the same place, so I don't want to find a new bank. If I simply start a second savings account there, and split the amounts so neither one is above $250,000, will I get additional FDIC insurance, or does it have to be a different type of account?

A: Not only won't your plan work, but based on the situation you describe, there is a possibility you have already exceeded the FDIC insurance limit. However, there are things you can do to get your deposits fully covered.

Simply splitting your money between two savings accounts won't entitle you to more than $250,000 in FDIC insurance coverage, and it doesn't matter what kind of accounts you have -- the limit applies to the combined total of your accounts at any given bank. So, since your savings account is approaching $250,000 and you have a checking account at the same bank, there is a chance you are already over the limit if the combined total of those two accounts exceeds $250,000.

Basically, there are three ways you can get more than $250,000 in FDIC insurance:

  1. Create a different entity. You can maintain control of assets but create a separate ownership entity for some of your money. That separate entity would be considered a separate depositor for FDIC insurance purposes, so you could use this as a way of obtaining additional FDIC insurance. An IRA is probably the most straightforward example of a separate ownership entity, and certain trusts and corporate accounts would work too.
  2. Use a joint account. In a joint account, each depositor is entitled to $250,000 worth of FDIC insurance coverage. So, for example, if you and your spouse had a joint $400,000 account, you would be covered because you'd each be allowed $250,000 worth of coverage, for a total of $500,000.
  3. Consider a second bank. Although you'd like to stay with your bank, moving some of your deposits to a separate bank might be necessary at some point in order to remain fully covered by FDIC insurance. Consider moving some money you are saving for the long-term so you won't have to do much with it. That way, your checking account or other money you interact with more frequently can stay with the bank you are used to.

With interest on most savings accounts well below 1 percent, FDIC insurance may be the primary benefit to having your money in a bank these days. You'll want to organize your accounts so you can take the fullest advantage of that benefit.

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