How FDIC insurance works, plus a breakdown of coverage limits

The sudden collapses of Silicon Valley Bank and Signature Bank raised questions regarding the level of protection consumers have for their bank deposits.

When you open a deposit account, such as a savings or checking account, you may see a notice stating the account is FDIC-insured.

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the U.S. government that protects and reimburses your deposits up to the legal limit of $250,000 if your FDIC-insured bank fails.

Though it's not very common, a bank can fail when it takes on too much risk, such as extending credit to borrowers that wind up defaulting. When this happens, the bank goes belly up, putting its customers' assets in jeopardy. But thanks to FDIC insurance, you can receive reimbursement up to the maximum amount so your funds aren't lost for good. However, in the case of Silicon Valley Bank and Signature Bank, the government is stepping in to make all depositors whole, beyond the usual insurance limit.

FDIC insurance covers checking, savings and other deposit accounts up to a standard amount of $250,000 — but there are a few caveats. Namely, the $250,000 limit is per account holder, not per account, like you might think.

But before we dive into insurance limits, here are the basics about FDIC insurance you need to know.

The FDIC covers many common deposit accounts but doesn't insure investment accounts. Here are the following types of covered accounts:

• Checking accounts
• Savings accounts (including high-yield savings accounts)
• Negotiable order of withdrawal (NOW) accounts
• Money market deposit accounts (MMDAs)
• Time deposits such as certificates of deposit (CDs)
• Cashier's checks, money orders and other official items issued by a bank

Meanwhile, these accounts are ineligible for FDIC coverage:

• Stock investments
• Bond investments
• Mutual funds
• Crypto assets
• Life insurance policies
• Annuities
• Municipal securities
• Safe deposit boxes or their contents
• U.S. Treasury bills, bonds or notes (These investments are backed by the full faith and credit of the U.S. government).

Most checking accounts and savings accounts provided by major banks offer standard FDIC insurance. Lots of these checking accounts also come with no monthly maintenance fees, which can save you up to $15 a month. 

As for savings, going with an FDIC-insured high-yield savings account can earn you more than 12 times the national interest rate.

Here are some of CNBC Select's top-rated checking and savings accounts.

You can find out if your banking institution is insured with the FDIC's BankFind tool.

The standard coverage limit is $250,000 per account owner, per each of the ownership categories we include in the table below. 

That means you could technically qualify for more than $250,000 in coverage if you hold accounts in more than one ownership category, either as an individual or with a joint account holder.

For instance, a couple with a joint checking account that's FDIC-insured can receive insurance for up to $500,000 for the same shared account ($250,000 per co-owner). And if each of you opens your own individual checking account separately (under the category of "single account") it would also have its own $250,000 coverage on top of your joint checking's $500,000 coverage.

You can also see that trusts, benefit plans and other accounts factor in whether there are beneficiaries, participants or custodians connected to them.

Here's a breakdown of the FDIC coverage broken up by type of account owner. 

However, a few accounts, such as the Wealthfront Cash Account (a basic no-fee checking option), are able to provide even higher FDIC insurance limits by spreading, or sweeping, your funds across multiple banks. In the case of Wealthfront Cash, accounts are FDIC-insured up to $2 million by allocating deposits across up to eight partner banks.

There's no reason to panic and rush to withdraw money from your bank. Most financial institutions are covered by FDIC insurance and the majority of Americans have less than the $250,000 insurance limit in a specific deposit account. The easiest way to boost your FDIC coverage is to spread your money across multiple banks. Or, you can open an account, such as Wealthfront Cash, which spreads your deposits for you.

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