I know that, for the most part, the FDIC covers the first $250,000 in the account. If I put multi-millions in one account will I get the stated interest on the entire amount, or just the first $250,000?
The bank pays interest on all the money in an account, unless the account terms dictate otherwise (I can’t think of what circumstances would lead to that). FDIC insurance is only there to pay out in case the bank fails.
Yeah, this is kind of a non sequitur. So long as it is solvent, the bank pays you whatever interest it has offered and returns your capital when stipulated, on whatever amount you invest. Only if a bank is insolvent does FDIC insurance kick in. The Fed guarantees payment of interest and repayment of principal on the original terms, up to a maximum of $250k.
If you buy (say) a bank CD offering 5% over 5 years, this does mean that you would invest a maximum principal amount of only $196k if you want to be completely made whole by FDIC insurance in the event of insolvency.
This assumes it’s a “bank”. Credit unions, OTOH, have the same sort of protection by a different entity, the National Credit Union Administration (NCUA). The max amount is $250k, the same as FDIC.
I’ve been reading up on this lately because I was considering opening another account at my credit union. However, I’ve just learned that if one does so, the total amount protected by NCUA in case a credit union goes belly up is the TOTAL of your multiple accounts up to 250k. Not 250k each.
Not that I’m in this league, but suppose one did have 500k laying around. What other options would they have besides opening accounts in two different institutions? I’m asking about pure savings accounts, not investments.
If one wanted to be sure that every penny of one’s savings was federally insured, the way to do it would be to have no more than $250,000 in any one bank or credit union.
I also believe that if you’re the kind of person who is so risk-averse that they need to have every penny of their savings federally insured, you’re unlikely to have amassed enough to need to find more than a couple of separate financial institutions.
I believe if you have one account in only your name and a second account held jointly with someone else, both accounts will be insured up to the maximum. And then there are various other ways of having multiple accounts. The bank or credit union should be familiar with these rules.
Let the institution do it for you?
This is part of the FDIC statement for Fidelity’s cash management account. Fidelity is a brokerage, but it is possible to hold money there and treat it just like a savings account, because that’s what it is.
If you have more than $245,000 in uninvested cash in your account, the Program will maximize your eligibility for FDIC insurance by allocating uninvested cash across multiple program banks. We currently have about 20 banks available
Additionally, if you do have investments, they are insured by SIPC, up to $500k for securities, and $250k for cash held in brokerage accounts. Money markets count as securities. That is all protecting against Fidelity (or it’s banking partners) going bankrupt, not market fluctuations.
I’m sure other brokerage firms have similar arrangements.
Have I told you that I think you’re the greatest poster in SDMB history!?
The first thing I’m buying is hip boots. 
You can buy Treasury Bills in a brokerage account in billions of dollars very easily. And sell them instantly before maturity just as easily. They are a direct obligation of the federal government, so federally-backed insurance is superfluous.
I’m thinking the other way around - open a joint account with $250k; as more $$$ comes in, 1 of the 2 co-owners opens another account in their name, xfer out say $250k minus $100 to keep it open, into the new individual account. So taking a famous couple as example, Cecil was married last time he mentioned any relationship status I can remember in 1 of his columns. Cecil and Mrs. Cecil (let’s call her Cecilia - nice how that works out) have 1 joint account, then Cecil opens a new same type of account in his name, xfers in $249,900. Any new $$$ coming in goes right into the joint account and unless there’s a sudden breakup, the Adamses now have $500k insured savings. It works vice versa too, leaving the $249,900 in & adding any new $$$ to the Cecil account. This is all assuming spouses trust each other not to abscond or make secret withdrawals. I dunno if the rules are the same for credit unions, nor if either would allow a 2-way split out of the joint account; if so, then the spouse can be brought into it for 1 joint account and 1 of their own too. Another way to extend this into the family is make a gift to kids, with their promise they won’t also abscond, withdraw, etc…
In a nutshell, FDIC & NCUA insurance covers any 1 individual up to the $250k, but in a joint account the financial institution can’t automatically say that each owns 1/2, so either one of them is allowed a personal account too. Note in this case, there need be no declaration of gift. When bringing more people in like the family scenario, there’s a limit how much any1 can gift tax-free, and it must be reported to the IRS. Shawshank Redemption touched on this a little, where Dufresne asks the sadistic guard how much he trusts his wife when the guard gets an inheritance from his brother; it’s then he explains the tax-free limit rule tho then it was $10k, back in 1950 - tho I don’t overestimate government largesse I would imagine it’s a higher limit now.
I assume the rule is it doesn’t matter what is balance and what is interest - interest due goes into the account, usually. Whatever the bank owes you, Mr. John Smith (obviously not Mr. Michael Johnson) for that particular account, and is so broke they cannot pay, the FDIC will pay $250,000.
But let’s say the bank can actually manage to cough up $100,000 for you. Do they pay you that and the FDIC the remaining $150,000?
Or would the FDIC pay $250,000 and you get whatever else the bank can give you? Or oes the FDIC pay you the full $250K and take everything the bank has, since I’m assuming sorting out the books will take longer than a few days?
What if you have $5M and the bank can pay out 10¢ on the dollar. Does the fact that they give you $500,000 mean the FDIC does not get involved with your account? Or does the FDIC take the balance until they are fully paid for all the other accounts they’ve covered too?
I imagine someone had fun writing all those rules…
Then buy US treasury securities.
The US Treasury department in effect de facto changed the policy in regard to FDIC coverage when they made the decision to cover 100% of the deposits of Silicon Valley Bank and Signature Bank.
If you are a depositor of another bank in the future that fails, why are the depositors of those two banks so special and you are not?
The FDIC was conceived at a time when the main issue was covering people’s savings. Today, most businesses (most employers) basically do all of their business finance through a bank. That cannot be ignored. During the several weeks it may take to sort out a failed bank, a business may have to pay dozens of employees, pay rent and licensing and insurance and of course, the bills that come due for product purchased. The business will have outstanding debts that must be paid. Quite often, for a decent sized business, $250,000 is chump change. For 100 employees making $50,000/yr, a 2-week payroll will be about $200,000.
All these bills and employment pay are actually simple transfers. Other banks may refuse to accept transfers because the source bank is unable to make good during reonciliation. Or the bank may simply stop operating, recognizing it does not have the funds to make such transfers. Not to mention the IRS reacting to failure to remit withholding taxes, etc.
This is essentially a miniature version of the total bank collapse that was threatened in 2008. It’s all about trust. If a large number of employers in a certain area fail simply because their financial transactions are in limbo, even if they are solvent otherwise, then the FDIC is kind of irrelevant. There needs to be some sort of “business continuity” version of the FDIC. Guaranteeing the full amount of accounts is just a stop-gap.
Every typical small business cannot afford to have a full-time “bank reliability” position on its accounting staff. that is what FDIC and Federal Bank oversight is for.