What to Do if Your Bank Balance Exceeds $250,000

If you’ve got more than $250,000 sitting in a bank account, FDIC insurance might be something you’re thinking about. It’s there to protect your money in case the bank goes under, which is a big deal if you’ve worked hard to build your savings. But what exactly does FDIC insurance cover, and how does it work?

Let’s break it down into simple terms so you know what’s protected and what isn’t.

What Is covered by FDIC insurance?

FDIC insurance covers various accounts that most people use every day. If you’ve got a checking account, savings account, or even certificates of deposit (CDs), those are all covered. Basically, if your money is sitting in a regular bank account at an insured bank, it’s protected up to $250,000 per depositor, per bank, and per ownership category.

So, if you’ve got a combination of savings and checking accounts at one bank, you’re good — as long as the total doesn’t exceed that $250,000 limit.

What isn’t covered?

Now, FDIC insurance doesn’t cover everything. If you’ve got investments like mutual funds, stocks, or annuities, they’re not protected by FDIC insurance, even if you bought them through your bank. So, if you’re dabbling in investments, just keep in mind that your money isn’t shielded the same way your savings or checking account balance would be.

Basically, if it’s a riskier financial product, you’re on your own when it comes to FDIC coverage.

How does the $250,000 limit work?

Here’s where it gets a bit more detailed. FDIC insurance protects up to $250,000 per depositor, per bank. That means if you have $300,000 in one account at a single bank, only $250,000 of that is covered by insurance. The extra $50,000? It’s uninsured unless you take steps to spread it out.

Now, if you’re married or have joint accounts, you can split up the insurance coverage. For example, if you and your spouse have a joint account, the FDIC will cover up to $500,000 — $250,000 for each of you. It’s a nice way to increase your coverage without opening new accounts all over town.

FDIC Ownership Categories

This is where things get a little more flexible. The FDIC doesn’t just stop at covering individual and joint accounts. There are different “ownership categories” that allow you to stretch that $250,000 limit. For instance, if you’ve got a trust account or a retirement account, those could qualify for separate insurance coverage.

Each ownership type is insured separately, so if you’ve got an individual account, a joint account with your spouse, and a trust account, each one could be covered up to $250,000. That’s how some people get more than a million dollars of FDIC insurance at the same bank. Pretty clever, right?

Protecting Deposits Over $250,000

When your bank balance exceeds $250,000, you’ll want to make sure all your hard-earned money is protected. While FDIC insurance caps out at $250,000 per depositor, there are smart ways to spread your funds around and increase your coverage. Let’s go through some practical steps to keep your deposits safe.

1. Open Multiple Accounts at Different Banks

One of the simplest ways to make sure all your cash is covered is by splitting it across different banks. Each bank has its own $250,000 FDIC limit, so by opening accounts at multiple FDIC-insured banks, you can ensure your entire balance is protected. For example, if you’ve got $500,000, you can put $250,000 in one bank and the other $250,000 in a different one.

It’s a straightforward strategy, and most people find it easy to manage with today’s online banking tools.

2. Add Beneficiaries or Joint Account Owners

Another way to stretch your FDIC coverage is by adding a joint account holder or beneficiaries. If you’ve got a spouse, for instance, adding them as a joint owner doubles the insured amount to $500,000 — $250,000 per person. This works because the FDIC insures each depositor separately, so two account holders means double the coverage.

You can also designate beneficiaries on certain accounts, like Payable on Death (POD) accounts. For each beneficiary you add, the FDIC provides an extra $250,000 in coverage. So, if you’ve got two beneficiaries, your account could be insured up to $750,000.

3. Leverage Different Ownership Categories

FDIC insurance doesn’t limit you to just individual or joint bank accounts. By using different ownership categories, like trust accounts or retirement accounts, you can expand your coverage even further. Each of these categories qualifies for separate insurance coverage.

For instance, if you’ve got an individual checking account, a joint savings account, and a trust account at the same bank, each category gets its own $250,000 coverage. This allows you to stack insurance limits and protect more of your money without having to open accounts at multiple banks.

4. Utilize a Bank Deposit Network

Services like the Certificate of Deposit Account Registry Service (CDARS) or the IntraFi Network let you spread your deposits across multiple banks while keeping everything under one account. These networks place your money in FDIC-insured banks behind the scenes, so you can stay under the $250,000 limit at each bank without needing to manage a bunch of different accounts yourself.

One example is the SoFi Insured Deposit Program. SoFi Checking and Savings members can enroll in this program to increase their FDIC insurance coverage to up to $2 million, while still keeping everything in one account. There are no fees to participate, and you can earn up to 4.30% APY on savings and 0.50% APY on checking balances if you have direct deposit. It’s a simple way to keep your large balances insured while earning competitive interest rates.

Alternatives to FDIC Coverage

If your deposits are growing beyond the FDIC limit, and you’re looking for other ways to keep your money safe, there are plenty of alternatives out there. These options go beyond traditional bank accounts and can offer similar protections for your large balances. Let’s explore a few of the best alternatives to FDIC coverage.

Consider Credit Unions with NCUA Insurance

If you’re a fan of credit unions, you’ll be happy to know that they come with their own version of FDIC insurance. It’s called NCUA insurance, and it’s offered through the National Credit Union Administration. Just like FDIC, NCUA insurance covers up to $250,000 per depositor, per credit union, and it protects the same types of accounts like savings, checking, and CDs.

Credit unions are often a great choice if you prefer a more community-focused approach to banking, but it’s good to know that your money is protected at the same level as it would be in a traditional bank.

Cash Management Accounts (CMAs)

If you’re working with a brokerage firm or a robo-advisor, you might have access to a cash management account (CMA). These accounts work a lot like regular bank accounts, but they often come with the added benefit of spreading your money across multiple banks.

CMAs can help you stay under the $250,000 FDIC limit by automatically dividing your balance between several FDIC-insured banks. That way, even if you’ve got more than $250,000 in the account, each piece is fully protected. It’s a hassle-free way to manage large balances while keeping your funds insured.

Research State-Level Depositors Insurance

Some states offer extra layers of protection for your deposits beyond what the FDIC or NCUA provide. For example, in Massachusetts, banks that are part of the Massachusetts Depositors Insurance Fund (DIF) insure deposits over the $250,000 FDIC limit. This additional insurance means that even if your balance exceeds $250,000, it’s fully covered.

Other states may have similar programs, so it’s worth checking if your bank offers state-level depositor insurance. It’s an easy way to get extra coverage without having to open multiple accounts.

Invest in Treasuries or Money Market Funds

If you’re looking for a low-risk place to park your cash, government-backed securities like Treasury bills (T-bills) or certain types of money market funds can be a good option. T-bills are essentially short-term loans to the government, and they’re considered one of the safest investments out there. Since they’re backed by the U.S. government, there’s virtually no risk of losing your money.

Money market funds are another safe place for your extra cash, but not all of them are insured. If you choose a money market fund, make sure it’s one that invests in government securities for maximum protection.

What Happens If a Bank Fails?

While bank failures are rare, they do happen from time to time. If your bank goes under, it can be a nerve-wracking experience, especially if you have a significant amount of money in your accounts. But that’s exactly why FDIC insurance exists—to protect depositors like you. So, let’s break down what actually happens if a bank fails and how the process works.

FDIC’s Role in Bank Failures

When a bank fails, the FDIC steps in to take control and ensure that depositors get their money back. The first thing they do is either find another bank to take over the failed institution or pay depositors directly. In most cases, they’ll transfer your insured deposits (up to $250,000) to another bank, and you can access your money as if nothing happened. This transfer usually happens within a few days, so you’re not left without access to your funds for long.

If the FDIC can’t find a bank to take over, they’ll issue a check for the insured amount. Either way, your covered deposits are secure, and you should have your money back in your hands pretty quickly.

Claiming Uninsured Funds

But what if your balance exceeds the FDIC insurance limit? That’s where things get a little more complicated. If you have uninsured funds in the failed bank, the FDIC will try to recover as much of that money as possible by selling off the bank’s assets. This process can take some time, and there’s no guarantee you’ll get all your uninsured funds back.

In most cases, depositors with uninsured balances receive a portion of their money over time as the FDIC liquidates the bank’s assets. It’s not ideal, but it’s better than losing everything. If you ever find yourself in this situation, the FDIC will send you regular updates on the status of your claim and how much of your uninsured balance they’ve been able to recover.

To avoid this scenario, it’s a good idea to keep your deposits under the insured limit by spreading your money across different banks or ownership categories. That way, if the worst happens, you won’t have to worry about the fate of your excess funds.

3 Tips for Managing Large Balances Safely

When you’ve got a large balance in the bank, keeping it safe becomes a top priority. The good news is there are a few straightforward strategies you can use to minimize risk and make sure your money stays protected. Let’s look at some practical tips for managing those big balances.

1. Diversify Between Banks and Accounts

One of the easiest ways to protect your money is by not putting all of it in one place. By spreading your funds across multiple banks, you can take advantage of FDIC coverage at each institution. For instance, if you’ve got $500,000, consider splitting it between two banks so that you’re fully covered at each one.

You can also use different types of accounts within the same bank to increase your protection. Trust accounts, joint accounts, and retirement accounts all come with their own insurance limits, allowing you to diversify without having to open multiple bank accounts.

2. Regularly Review Your Account Balances

It’s easy for balances to creep up over time, especially if you’re not actively tracking them. That’s why it’s a good idea to regularly check your account balances to make sure you’re not accidentally exceeding the FDIC insurance limit.

Setting up alerts or doing monthly balance reviews can help you stay on top of things and give you the chance to shift funds before you go over the limit. Keeping an eye on your accounts doesn’t take much time, but it can make a big difference in protecting your money.

3. Consult with a Financial Planner

If your balances are getting complicated, or you’re not sure how best to manage your deposits, talking to a financial planner can be a smart move. A good financial planner can help you figure out how to structure your accounts for optimal safety and even recommend alternative investments or deposit strategies.

They can also provide insights into other low-risk options like treasuries or money market funds, which can help you grow your money without compromising on safety. It’s all about finding the right balance between security and growth—and a financial planner can guide you in the right direction.

Conclusion

When your bank balance exceeds $250,000, it’s essential to take steps to ensure that all of your money is protected. By leveraging strategies like splitting your funds across multiple banks, adding joint account holders, or exploring alternatives like credit unions and cash management accounts, you can maximize your deposit insurance coverage.

Don’t forget to review your accounts regularly and stay mindful of how your money is spread out. If your financial situation becomes more complex, consulting with a financial planner can help you create a solid plan to safeguard your assets. Take some time to evaluate your current setup, and make sure you’re fully covered—because protecting your hard-earned money should always be a top priority.