how does FDIC insurance translate to my bank account?

Question

So I’ve heard about FDIC insurance and how it means that “your account is insured for up to $250,000.”

But let’s say I won $1M in the lottery. In order to maximize my insurance coverage, would I have to open up accounts at 4 separate banks? Or could I open 4 accounts at the same bank? If the latter, would these 4 accounts have to have their own separate logins? Or could I have a single login with, say, 4 money market accounts under that single login?

I swear I’ve tried to Google different variations of this question. I have even asked the poor accounts officer at my bank, but he didn’t seem terribly confident in his answer.

In: Economics

Answer 1

You would have to open 4 accounts in 4 separate banks, not just different branches of the same bank. This is pretty complex, as little banks get bought and sold all the time. Of course, this would involve 4 separate logins, but financial software like Quicken might make that transparent to you (not an ad for Quicken).

Here’s what happens, it happened to me once, your bank might start to fail. Then the local bank regulators, the country is divided up into districts, start to ask questions. When the bank can’t satisfy the regulators, they just show up one day and seize the bank. This happened a couple years ago with Silicon Valley Bank, and it happens several times every year.

You get a letter saying “Your bank has been seized by the Feds, we have good news and bad news. Good news, you will get your money back. Bad news, it will take a little time.” Their first strategy is to get a bigger bank to buy the broken bank and take over the accounts. This is great, because it’s fast and you get mostly the same services. The only downside is that it can cause you to have $500K in the bigger bank, and have to start looking for another bank to move money to. If they can’t make someone buy the broken bank, they liquidate it. You get some of your money right away, and the rest in a couple of months. You have to open a new bank account to deposit these checks, and hope you pick better the next time.