Many people view banks and credit unions as financial institutions that can help keep their money safe. After all, that is what banks and credit unions do, right? Not exactly. These institutions exist to accept deposits and make loans, although, in the case of credit unions, they typically do so on a 'not-for-profit' basis. It is safer to store money in bank or credit union than, say under mattresses or in buried coffee cans. However, the idea that these organizations are designed to keep your money safe is a little misguided.
That isn’t to say that they offer no protection for your money. Today’s banks and credit unions are safer than they have been at various points throughout history. This is largely a credit to two organizations:
- Federal Deposit Insurance Corporation (FDIC)
- National Credit Union Administration (NCUA)
Since the founding of these organizations, no holder of a bank account or member of a credit union has lost a single penny of deposits that were federally insured.
NCUA and FDIC Insurance Limits
Here’s where things get interesting. These organizations do provide insurance for the money held in a qualifying bank or credit union accounts, up to certain limits. Both organizations offer protection and guarantees for up to $250,000 per depositor, per financial institution without account holders lifting a finger or paying a dime.
The more “depositors” assigned to the account, the higher the protection becomes. Additionally, people who have accounts at multiple banks or credit unions will enjoy the same protection for each financial institution.
There are a variety of qualifying accounts that can receive the protection offered by FDIC and NCUA Insurance. They include:
- Checking Accounts / Share Draft Accounts
- Savings Accounts / Share Accounts
- Negotiable Order of Withdrawal (NOW) Accounts / Interest-Bearing Checking Accounts
- Certificated of Deposit / Share Certificates
- Money Market Deposit Accounts
- Cashier’s Checks, Money Orders, Etc.
You should note that different insurance protections exist in cases of robbery and theft. The FDIC and NCUA do not insure in these types of losses.
Maximizing Your Insurance Protection
The key, of course, is to seek out ways to get more protection for your investment with as little effort as possible. These are a few things you can do to help you maximize your insurance protection:
- Open joint accounts. The protection offered by the insurance is per account holder. A joint account doubles your protection.
- Consider a revocable trust. With this type of account, the insurance extends $250,000 of protection for each unique named beneficiary, greatly increasing the protection for that account.
- Open an account for each family member. That can help to maximize protection.
- Open accounts with multiple banks or credit unions. Diversifying can help reduce your overall risk.
- Avoid keeping more than the maximum covered amount in any of your accounts. Another important safety measure you can take.
- Divide accounts into different categories. That prevents the bank from lumping multiple accounts together and limiting the insurance protection provided.
- Ask about getting additional or private deposit insurance. Some banks offer this free of charge to customers who ask.
Banks and credit unions exist in a highly competitive market. Many are willing to go the extra mile to ensure you are confident with the coverage and protection you have. They are often willing to work with you to help you spread your money around in a fashion that limits your risk and exposure to keep your business.
While FDIC and NCUA insurance coverage do not offer complete and total protection automatically to consumers, they do allow a fair amount of flexibility so that savvy consumers can get the protection that makes them feel better protected. These things will help you get the insurance protection your bank deposits require.