Why More Than $250,000 in a Single Bank Account Can Expose Your Savings to Risk

Savers who have accumulated large cash balances may be reluctant to put all of that money into the stock market, since investing comes with its own risks.

But holding too much cash at one institution can create a different kind of danger, particularly if the total exceeds $250,000.

How the $250,000 insurance limit works

Federal Deposit Insurance Corporation, or FDIC, coverage protects up to $250,000 per depositor, per insured bank, for each account ownership category. If you keep money at an insured bank, the first $250,000 is protected if the institution fails. Credit unions offer similar protection through the National Credit Union Administration, or NCUA. Once a balance goes beyond $250,000, the excess is no longer fully insured.

For example, someone with a $100,000 checking account and a $200,000 savings account at the same bank could have $50,000 that is not covered. That would not matter if the bank remains healthy, but the uninsured amount could be lost if the institution collapses. Opening several checking, savings, certificate of deposit, or money market accounts at the same insured bank usually does not solve the issue, because those deposits are typically combined for FDIC coverage purposes.

The FDIC only insures deposit products. Stocks, bonds, cryptocurrencies, and annuities are not covered by FDIC or NCUA insurance.

Why uninsured deposits can be a concern

Bank failures are uncommon, with only two reported in the latest year cited by the FDIC. Still, failures can rise sharply during periods of financial stress, as shown by years when more than 100 banks failed.

Even if the odds are low, it may not be worth taking that risk when the solution is simple. If you have more than $250,000 at one bank, you can open an account at another financial institution and move some of the funds there.

Ways to protect more of your cash

One straightforward way to safeguard more of your money is to spread deposits across FDIC-insured banks or NCUA-insured credit unions. Using different account ownership categories can also increase coverage. Joint accounts, trust accounts, and certain retirement accounts may provide additional protection, depending on your financial and legal circumstances.

Some banks also offer cash-sweep programs that distribute deposits among partner banks. Even so, it is still wise to confirm with the institution that your money is fully protected.

Why holding too much cash may not be ideal

Having more than $250,000 sitting in a bank account may also be inefficient from an investing standpoint. Over the long run, the stock market has the potential to generate much higher returns than savings accounts, checking accounts, or comparable options such as CDs.

Financial advisors often suggest keeping enough cash in a liquid account to cover three to six months of living expenses. Depending on your goals, risk tolerance, and investment timeline, you may want to keep more than that on hand, but it may still make sense to invest some of your excess cash.