An insured account is a financial account held at a bank, savings and loan association (S&L), credit union, or brokerage firm that is protected by insurance provided by federal, state, or private entities. This insurance mitigates the risk of loss in the event that the financial institution fails, ensuring account holders’ funds remain secure up to certain limits.
Types of Insurance for Financial Accounts
Federal Deposit Insurance Corporation (FDIC)
The FDIC insures deposits at banks and savings and loan associations (S&Ls) for up to $250,000 per depositor, per insured bank, for each account ownership category.
National Credit Union Administration (NCUA)
For credit union accounts, the NCUA provides similar protection through the National Credit Union Share Insurance Fund (NCUSIF). The coverage limit is also $250,000 per depositor, per insured credit union, for each account ownership category.
Securities Investor Protection Corporation (SIPC)
Brokerage accounts are protected by the SIPC. While SIPC coverage does not protect against declines in market value, it does cover up to $500,000 per customer, including a maximum of $250,000 for cash claims.
Coverage Limits
Understanding coverage limits is essential:
- FDIC: $250,000 per depositor, per insured bank.
- NCUA: $250,000 per depositor, per insured credit union.
- SIPC: $500,000 per customer, with a $250,000 limit for cash claims.
Special Considerations
Joint Accounts
Insurance coverage under both FDIC and NCUA can be extended for joint accounts. Each co-owner’s interest is protected up to the insurance limit, effectively increasing the total insured amount for the account.
Business Accounts
Business accounts are also insured, provided the institution holds the appropriate insurance from organizations like FDIC, NCUA, or SIPC.
Historical Context
The concept of insured accounts became significantly prominent after the Great Depression, particularly with the establishment of the FDIC in 1933. This was a direct response to widespread bank failures and the resulting loss of depositor funds. Insurance for credit unions followed later, and the SIPC was created in 1970 to protect investors post the Wall Street crash of 1929.
When Are Insured Accounts Applicable?
Insured accounts are suitable for anyone looking to safeguard their deposits against institutional failures.
- Retail Banking Customers: To protect savings and checking accounts.
- Credit Union Members: Ensuring the safety of deposits in credit unions.
- Investors: Protecting brokerage accounts, albeit with different terms regarding market value declines.
Related Terms
- Certificate of Deposit (CD): A savings certificate with a fixed maturity date and specified interest rate, insured by the same entities (FDIC or NCUA).
- Money Market Account: A type of savings account subject to insurance limits as outlined.
- Trust Account: Trust accounts’ insurance limits and applicability can vary, requiring careful understanding and structuring.
FAQs
What happens if a bank or credit union fails?
Can I have more than $250,000 insured at one bank?
Does insurance cover investment losses in brokerage accounts?
References
- Federal Deposit Insurance Corporation (FDIC)
- National Credit Union Administration (NCUA)
- Securities Investor Protection Corporation (SIPC)
Summary
Insured accounts offer a crucial level of security for depositors and investors, safeguarding their funds against institutional failures. By understanding the coverage limits and the types of insurance available, individuals can better protect their financial assets.
