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What FDIC Insurance Does Not Insure

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FDIC Logo LobbyWe all know that the Federal Deposit Insurance Corporation insures each depositor up to $250,000 per insured bank and it’s an insurance policy that is as good as gold (OK, technically not as good… but pretty solid). Sometimes we forget, as we saw the run on IndyMac a few years ago (it was actually most 4 years ago to the day), but the FDIC insurance has always covered every depositor and no depositor has ever lost an insured penny.

That said, not everything you keep with your bank is covered by FDIC insurance. Many people learned that recently with Hurricane Sandy but also back in previous hurricanes, as high water flooded many bank vaults. Here are a few of the things the FDIC does not insure at the bank.

Check for FDIC Insurance

It sounds almost unnecessary but check to see that the bank is even covered by the FDIC. by using their BankFind tool. If a bank isn’t covered by the FDIC, then nothing you give that bank will be covered by the FDIC insurance. I can’t think of a scenario in which you would ever use a bank that isn’t FDIC insured, I feel that it would be irresponsible of me if I didn’t mention how you could check your bank. :)

Safe Deposit Boxes

It came as a surprise to many that the contents of your safe deposit box is not covered by FDIC insurance. It doesn’t matter what you have in there, the FDIC does not bear any responsibility should it be lost in a theft, fire, or flood. Some banks offer insurance policies but you should also contact your homeowners insurance provider to see what their rates are for coverage. Your homeowners policy may already cover safe deposit boxes, so check your policy. If you don’t have coverage already, compare rates to see if how the bank’s insurance (if offered) compares to your own. Also, many experts advise that if you do store documents in your safe deposit box, put them in ziploc bags or other water resistant containers so that they can survive a flood.

Robberies

If your bank is physically robbed, the FDIC doesn’t cover that. I suspected part of the reason is because there’s no way to say it’s your money if they take it out of the cash drawer, so the theft is covered under the bank’s blanket bond (it’s basically an insurance policy), but that’s not the underlying reason. In the event that a thief gains access to your account and steals money, then you need to contact the bank and law enforcement to figure out how is responsible but the FDIC does not cover that either.

How do those bonds work? I asked Kevin Kaiser of SuretyBonds.com – “Bonds help banks cover what the FDIC does not, but the protection your bank has against theft varies. It varies because the bank has an option to choose their level of coverage. A typical bond of this type (that we see) offers $500,000 in coverage. As an account holder, surety and fidelity bonds can be viewed as an added layer of protection and accountability the bank must have to help cover deposits. This includes protection against theft or robbery. In the event of theft, bank officials will work with their insurer to submit a claim and other necessary documentation. The individual account holder is unlikely to be involved in this process.”

In other words, don’t worry, banks are covered even if it’s not by the FDIC.

Investment Products

Any investments in stocks, mutual funds, or bonds are not covered by FDIC even if you purchase them through a bank. Annuities and Treasury Bills are not covered, even if you purchase them through a bank. You are simply buying them at the bank, you aren’t buying them from the bank, and they’re not considered a deposit, which is what the FDIC covers. The investments are typically purchased through another entity and what you want to look for there is SIPC insurance. Annuities are offered through insurance companies. Treasury bills are purchased from the Treasury and are backed by the full faith and credit of the United States, which is theoretically better. So that’s a whole laundry list of products that you may purchase at the bank but that aren’t covered by the FDIC.

Amounts Over the Limit

The FDIC insurance only goes to $250,000 per depositor per bank. For amounts over that, sometimes you can still get reimbursed for those funds but there is no guarantee. What happens is the FDIC will sell the bank’s assets to pay depositors and creditors. If everyone is paid, and the FDIC receiver’s expenses are covered, the excess is distributed to uninsured depositors. Sometimes uninsured depositors are repaid in full, other times it’s a percentage. Whereas covered deposits are available immediately, it can take months and years for uninsured depositors to receive any money.

So the lesson in all this is to be aware that only your deposits, usually in checking, savings, and CDs; are covered and to avoid putting too much at one bank!

(Photo Credit: afagen)

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5 Responses to “What FDIC Insurance Does Not Insure”

  1. DCV says:

    The robbery point is silly. Cash is an asset, deposits are liabilities. Being robbed of an asset has absolutely nothing to do with the liability side of the balance sheet. A loan loss is akin to being robbed. Loans are assets too. Loan losse also don’t change deposit liabilities in any way. Continuing; neither does fire damage to a bank office. Get it?

  2. Tony Lovasco says:

    I’m fairly certain that all banks are required to be FDIC insured.

    That said, there are certainly some non-bank institutions (like Paypal) that dance on the line between being just a money transfer agent and a bank. So double-checking FDIC coverage is never bad advice.

  3. Jim, thanks for this. Interesting about robberies.

    Permit to expand a bit on FDIC insurance. Insurance is $250k per depositor, per bank, per account ownership category. People often aren’t aware of that third piece–account ownership category. Your readers can see the FDIC account ownership categories at http://www.fdic.gov/deposit/deposits/insured/ownership.html.

    In brief, you alone could get $250k insurance on a singly owned account, you+your spouse could get $500k insurance ($250k each) on a jointly owned account, and you could get another $250k insurance on an insured IRA account–all at the same bank. Then you could repeat this at the bank across the street, or, for someone like you, several other banks (not branches!) until you run out of money. :-)

  4. Shirley says:

    I did not realize (or even think about) the fact that there was a possibility of the contents of a safe deposit box being lost, but it does make sense. I guess my next move is to check the insurance. ;-)

  5. Good, interesting information.


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