FDIC coverage for public unit deposits runs up to $500,000 per official custodian at a bank located in the depositor’s own state, split evenly between demand deposits and time and savings deposits. For deposits placed at a bank with no presence in the public unit’s home state, that ceiling drops to a single $250,000 limit covering all account types combined.1eCFR. 12 CFR 330.15 – Accounts Held by Government Depositors Government balances almost always exceed those caps, so the insurance rules are only half the story; collateral pledges and reciprocal deposit programs cover the rest.
The In-State and Out-of-State Limits
Under 12 CFR 330.15(a)(2)(i), an official custodian depositing funds at a bank located in the public unit’s state receives two separate $250,000 insurance buckets:1eCFR. 12 CFR 330.15 – Accounts Held by Government Depositors
- Up to $250,000 in the aggregate for time and savings deposits, including certificates of deposit.
- Up to $250,000 in the aggregate for demand deposits, meaning checking accounts and other accounts payable on demand.
A county treasurer can capture the full $500,000 at one bank by splitting funds across both categories. A bank qualifies as “in-state” if it operates a branch in the public unit’s state, even if its headquarters sits elsewhere, so a national bank based in New York with an Ohio branch gives an Ohio municipality the two-bucket treatment.1eCFR. 12 CFR 330.15 – Accounts Held by Government Depositors
Deposits placed at a bank with no branch in the public unit’s state fall under 12 CFR 330.15(a)(2)(ii). Checking, savings, and CDs all pool into a single bucket insured to $250,000 total.1eCFR. 12 CFR 330.15 – Accounts Held by Government Depositors A school district holding $200,000 in savings and $100,000 in a CD at an out-of-state bank would leave $50,000 uninsured.
Who Counts as an Official Custodian
Everything in the insurance calculation runs per official custodian, so the designation matters. An official custodian is a person appointed or elected to a public unit who holds plenary authority over its funds: the power to open accounts, make deposits, authorize withdrawals, and direct disbursements personally.1eCFR. 12 CFR 330.15 – Accounts Held by Government Depositors Signatory access or routine bookkeeping does not meet the standard.
When two or more officers must act jointly to move the unit’s funds, the FDIC treats them as a single custodian, so coverage cannot be multiplied by splitting authority among people who each lack independent control.2Federal Deposit Insurance Corporation. Financial Institution Employee’s Guide to Deposit Insurance – Government Accounts One person serving as official custodian for several distinct public units, on the other hand, receives a separate set of insurance limits for each unit’s funds.3eCFR. 12 CFR Part 330 – Deposit Insurance Coverage
What Qualifies as a Public Unit
A public unit, for insurance purposes, is a state, county, municipality, or political subdivision of one. The subdivision category is wide. It takes in school districts, power districts, sanitary districts, irrigation districts, levee districts, port authorities, bridge authorities, and other special districts created by state law or interstate compact.4Federal Deposit Insurance Corporation. Deposit Insurance for Accounts Held by Government Depositors
A subdivision of a larger public unit, or a principal department within one, can claim separate insurance coverage only if it meets a three-part test: creation expressly authorized by law, actual government functions delegated to it, and exclusive control over funds earmarked for its exclusive use.3eCFR. 12 CFR Part 330 – Deposit Insurance Coverage A water utility board that collects its own fees, manages its own budget, and operates under a separate statutory charter likely qualifies. A department that receives an annual allocation from the county general fund and answers to the county treasurer does not. Failing any one of the three conditions pulls the department’s funds into the parent unit’s insurance calculation.
How Accounts Aggregate at One Bank
The FDIC pays no attention to how many account numbers a public unit holds at a bank. What it looks at is who controls the money. If a single treasurer manages funds for the parks department, the fire department, and the public library within one municipality, every account rolls into the same insurance pool.3eCFR. 12 CFR Part 330 – Deposit Insurance Coverage Separate budget lines and separate account numbers do not create separate coverage.
Independent coverage within one bank requires either genuinely separate custodians, each with their own plenary authority, or genuinely separate public units. A county and an independent school district within that county would typically each receive their own insurance, because the school district is its own political subdivision with its own custodian.2Federal Deposit Insurance Corporation. Financial Institution Employee’s Guide to Deposit Insurance – Government Accounts Two departments reporting to the same county treasurer would not.
Account Titling and Records
The custodial relationship has to be visible in the bank’s deposit account records. FDIC rules require that a claim for insurance based on a fiduciary relationship, including the custodial relationship behind public unit coverage, be disclosed in those records. The account title must make the arrangement apparent, either by specific reference to the fiduciary capacity or by titling that sufficiently indicates the relationship.5eCFR. 12 CFR 330.5 – Recognition of Deposit Ownership and Fiduciary Relationships
In practice, an account titled “City of Springfield – General Fund – Jane Doe, Treasurer” is far more defensible than one labeled “Jane Doe.” If a bank fails and the FDIC cannot tell from the records that funds belong to a public unit held by an official custodian, the deposit may be insured under standard individual coverage rather than the government deposit rules. Ownership and capacity must be traceable from the bank’s records or from the depositor’s own records kept in the ordinary course of business.5eCFR. 12 CFR 330.5 – Recognition of Deposit Ownership and Fiduciary Relationships
The Bond Proceeds Exception
Deposits of bond or note proceeds get different treatment when the bond indenture or governing law requires those proceeds to be set aside specifically to repay the bondholders. Instead of being insured as a public unit deposit, the FDIC treats the funds as trust funds held for the benefit of individual noteholders and bondholders, and each holder’s proportional interest is insured separately up to $250,000.1eCFR. 12 CFR 330.15 – Accounts Held by Government Depositors
Total coverage can run far above the ordinary $500,000 in-state ceiling when the issue has many holders. A sinking fund for a bond held by 100 investors could theoretically carry up to $25 million in insured deposits. The money must actually be legally required to be set aside for debt service; a general fund balance informally earmarked for that purpose does not qualify.
Federal Government Deposits Follow a Different Rule
Federal deposits sit outside the state and local framework. Under 12 CFR 330.15(a)(1), each official custodian of U.S. government funds receives the same two-bucket structure of $250,000 for time and savings deposits plus $250,000 for demand deposits, with no in-state versus out-of-state distinction.1eCFR. 12 CFR 330.15 – Accounts Held by Government Depositors Federal depositaries must also pledge collateral under 31 CFR Part 202 to secure any public money above the insured amount, with the Federal Reserve Banks acting as fiscal agents for those programs.6TreasuryDirect. Collateral Programs
Protecting Balances Above the Insurance Cap
Public unit balances routinely run into the millions, well past anything FDIC insurance will reach on its own. Two mechanisms cover the gap.
Pledged Collateral
State laws generally require banks holding public deposits to pledge collateral: assets set aside that the public unit can claim if the bank fails. Eligible collateral typically includes U.S. Treasury securities, federal agency bonds, and municipal securities. Many states also accept irrevocable letters of credit issued by a Federal Home Loan Bank or other government-sponsored enterprise. Pledged assets are usually held by a third-party custodian or a Federal Reserve Bank so they stay accessible during a liquidation, and the public unit recovers from the collateral rather than waiting in line as an unsecured creditor.
Collateral requirements vary by state. Finance professionals generally recommend maintaining pledged collateral at no less than 100% of the uninsured balance, marked to market monthly at a minimum. Some states set statutory minimum ratios, ranging from under 100% to as high as 150%. The depository agreement with the bank should spell out collateral terms, and verifying that collateral values keep pace with fluctuating deposit balances is a routine task that only becomes urgent when it’s too late.
Reciprocal Deposit Programs
Services like IntraFi’s Insured Cash Sweep and CDARS take a different approach: they distribute a large deposit across a network of FDIC-insured banks in increments that stay within the insurance limit at each receiving bank. The public unit keeps a single banking relationship with one local institution, which handles the allocation behind the scenes, and the full balance remains FDIC-insured rather than relying on pledged assets.
These programs have conditions. Pass-through FDIC insurance applies only when the accounts at each network bank are titled and maintained in accordance with FDIC regulations. Treasurers should also confirm that using a reciprocal deposit service satisfies any restrictions their state places on where public funds may be deposited. The programs work within the insurance rules at scale; they do not replace the need to understand them.