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Not all bank accounts are created equal. When you open an account at a bank or credit union, you normally enjoy an array of options, including checking and savings accounts. You may not be aware, though, that your new account fits into one of several ownership categories.
Bank account ownership categories refer to who owns an account, such as one person (single account) or a married couple (joint account). The Federal Deposit Insurance Corp. (FDIC) and the National Credit Union Administration (NCUA) use ownership categories to determine insurance limits for various accounts, such as $250,000 for a single account.
Common Bank Account Ownership Categories
Several categories cover the ownership of bank accounts. They include:
- Single accounts: A single account is owned by one person, such as a certificate of deposit (CD) held by a consumer or a checking account held by a business that's classified as a sole proprietorship.
- Joint accounts: A joint account is owned by at least two people, such as a checking account or money market account for a married couple.
- Revocable trust accounts: A revocable trust account is owned by one or more people and identifies beneficiaries who will receive the deposited money after the account's owner or owners die. The owner of a revocable trust can revoke, cancel or change the trust at any time.
- Irrevocable trust accounts: An irrevocable trust account is held by a legal entity known as a trust. The owner contributes assets to the trust but gives up the power to cancel or change this arrangement. In 2024, this category will be folded into the category of revocable trust accounts.
- Business accounts: A business bank account, such as a checking or savings account, is tailored to the needs of businesses of various sizes. One of the benefits of a business account is that it separates business transactions from personal transactions.
- Certain retirement accounts: Some retirement accounts, such as traditional and Roth IRAs (individual retirement accounts), fall into FDIC and NCUA ownership categories for insurance purposes.
- Employee benefit plan accounts: These accounts include employer-sponsored pension, 401(k) and profit-sharing plans.
How to Maximize FDIC Insurance With Multiple Bank Account Ownership Categories
If a federally insured bank or credit union fails, the FDIC or NCUA protects account deposits up to certain dollar amounts. Those amounts are dictated, in part, by an account's ownership category and start at $250,000 per owner.
The standard FDIC deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category at the same bank. All deposits a person holds in the same ownership category at an FDIC-insured bank are added up and insured for up to $250,000. (If you hold a joint account, each person on the account is insured up to $250,000.)
The FDIC offers separate coverage for money held in different ownership categories. Therefore, you could get more than $250,000 in FDIC coverage if your money is divided among several account ownership categories at the same bank.
The following chart shows how FDIC insurance should work for three joint accounts at one bank that are co-owned by a married couple. In this case, all three accounts fall into the joint account category.
| FDIC Insurance Coverage for Three Types of Joint Accounts | |||
|---|---|---|---|
| Type of Account | Account Balance | Ownership Share per Person | Amount Insured |
| Savings account | $100,000 | $50,000 | $100,000 |
| CD | $300,000 | $150,000 | $300,000 |
| Money market account | $100,000 | $50,000 | $100,000 |
| Total | $500,000 | $250,000 | $500,000 |
In the above example, all of the accounts would be fully insured by the FDIC, even though the CD contains $300,000. That's because the balances of the three joint accounts (one ownership category) total $500,000, or $250,000 per person. However, if the overall total in this category exceeded $500,000, some of their money would not be insured.
Now, let's say our married couple owns accounts in several ownership categories. The following chart shows how their three types of accounts at one bank—joint savings account, revocable trust account and traditional IRA—would be insured by FDIC.
| FDIC Insurance Coverage for Three Types of Ownership Categories | |||
|---|---|---|---|
| Type of Account | Account Balance | Share of Account per Person | Maximum Insured Amount |
| Joint account | $150,000 | $75,000 | $250,000 per owner |
| Revocable trust account | $225,000 | N/A | $250,000 per primary beneficiary (only one beneficiary in this example) |
| Spouse 1's traditional IRA | $200,000 | N/A | $250,000 |
| Spouse 2's traditional IRA | $250,000 | N/A | $250,000 |
| Total | $825,000 | N/A | $1.25 million |
In the above example, the couple's total insurance coverage goes up compared with the previous example. That's because they've got money stashed in three separate account categories, rather than just one ownership category. Overall, each spouse is eligible for up to $750,000 in FDIC coverage in this example.
Maximize Savings With a High-Yield Savings Account
Regardless of whether you're considering a single savings account or joint savings account, it might pay off to look into a high-yield savings account. Generally, a high-yield savings account offers a better interest rate than a traditional savings account does.
As of August 2023, the average interest rate for a savings account was 0.43%, according to the FDIC. At the same time, some high-yield savings accounts were paying rates above 5%.
A high-yield savings account might be a great place to set up an emergency fund or to more quickly meet financial goals, for example.
Find High-Yield Savings Accounts
The Bottom Line
When you're shopping for a place to park your money, you should consider factors like interest rates, fees and customer service. Beyond that, figure out how much deposit insurance you'll qualify for based on which bank account ownership categories are involved. Determining the difference between coverage for a single account and a joint account, for example, may make a big difference when it comes to ensuring your money is safe.