Is Your Real Estate Contract Deposit FDIC Insured?

There is no guarantee that your contract deposit being held in escrow during a home purchase is FDIC insured. Whether your deposit is fully insured, partially insured or uninsured depends on the size of your escrow deposit and whether you have existing funds under the same ownership category at the bank where the escrow is being held.

The standard FDIC deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category.

Funds held by an escrow agent are FDIC insured as deposits of the beneficiary. This means that each beneficiary whose funds are in an escrow account has up to $250k of FDIC insurance coverage.

Therefore, the balance of an escrow account has no bearing on your FDIC insurance coverage. You are still covered up to $250k even if the escrow account has a balance in excess of this amount.

For example, let’s say that an escrow account is holding $200,000 for four separate beneficiaries. The account balance is $800,000. If the bank goes under, each beneficiary is fully insured for $200,000 despite the account itself having a balance in excess of the $250,000 FDIC insurance limit.

If your home purchase contract deposit is $250,000 or less and you do not have any existing funds under the same ownership category at the bank where the escrow is being held, your contract deposit is fully insured.

If your earnest money deposit exceeds $250,000 and it’s being held in a single escrow account, it is partially uninsured.

If you already have funds under the same ownership category at the bank where the escrow is being held, these funds must be added to your contract deposit to determine the amount of FDIC insurance coverage.

In the wake of the 2023 collapse of Silicon Valley Bank in CA and Signature Bank in NY, some escrow agents now offer clients the ability to split contract deposits across different institutions in order to increase the total amount of FDIC insurance coverage.

Let’s look at a few examples of FDIC insurance coverage for real estate deposits:

Example 1:

Let’s say you have $200,000 in a Chase bank account in your personal name. You are buying a $1,500,000 apartment in NYC. The standard contract deposit in NYC is 10% of the purchase price. Unless otherwise negotiated, this means your deposit is $150,000. The seller’s attorney maintains an escrow account at Chase bank. Is your contract deposit FDIC insured?

In this example, your contract deposit is not fully insured. The sum of your existing Chase account balance of $200k and the contract deposit of $150k is $350k, and this exceeds the $250k FDIC insurance coverage threshold.

As a result, your contract deposit is only partially insured.

Example 2:

You are buying a townhouse in NYC and the purchase price is $4,000,000. The contract deposit is $400,000, and the escrow account is at Capital One. You do not have any funds at Capital One. Is your contract deposit FDIC insured?

In this example, your contract deposit is not fully insured. The current FDIC insurance limit is $250,000 per depositor, per ownership category, per FDIC-insured bank. Your contract deposit exceeds this threshold by $150,000. As a result, $150,000 of your $400,000 contract deposit is not FDIC insured.

Example 3:

You’re buying a new construction condo in NYC, and the purchase price is $5,000,000. The contract deposit is $500,000. The Escrow Rider in the contract states that the escrow agent maintains escrow accounts at both Bank of America and Citibank. You do not have any assets at these institutions at present. Is your contract deposit FDIC insured?

If you place the entire $500,000 into a single escrow account, it will not be fully insured. Your deposit will only be insured up to $250,000.

If you deposit $250,000 into the escrow account at Bank of America and $250,000 into the Citibank escrow account, your entire deposit of $500,000 is FDIC insured.