Banking 101: What is FDIC Insurance?

Banking 101

The FDIC (Federal Deposit Insurance Corporation), headquartered in Washington, D.C., is an independent agency of the United States government that oversees the banking industry. The FDIC insures trillions of dollars of deposits in U.S. banks and thrifts - deposits in virtually every bank and savings association in the country.

The FDIC was created in 1933 in response to thousands of bank failures that occurred in the 1920s and early 1930s. By the time the FDIC was created, American depositors had lost $140 billion due to the large number of bank failures. Without federal deposit insurance, there was no way for bank customers to get their money back.

The primary duty of the FDIC is to protects bank depositors against the loss of their insured deposits in the event that an FDIC-insured bank or savings association fails. FDIC insurance is backed by the full faith and credit of the United States government and is funded by premiums paid by banks and savings associations pay for deposit insurance.

The FDIC also supervises and examines banks and savings association to make sure they are operating soundly and is responsible for making sure that banks comply with consumer protection laws.

 What is Deposit Insurance?

FDIC deposit insurance coverage is automatically applied to any deposit account opened at an FDIC-insured bank, so long as certain conditions are met. Deposits are insured up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category.

In the event the FDIC-insured bank fails, deposit insurance is calculated dollar-for-dollar, principal plus any interest accrued or due to the depositor, through the date of default. For example, if a customer had a CD account in her name alone with a principal balance of $198,000 and $4,000 in accrued interest when her bank failed, the full $202,000 would be insured.

To determine if a bank is FDIC-insured, you can ask a bank representative or look for the FDIC sign at the bank. You can also consult the FDIC website at www.fdic.gov.

What is Insured by FDIC?

The FDIC insures deposits at member banks. The FDIC doesn’t protect deposits held at credit unions, which are generally insured by the National Credit Union Association (NCUA).

The types of accounts the FDIC insures include:

  • Checking Accounts
  • Savings Accounts
  • Money Market Deposit Accounts
  • Certificate of Deposit (CD) Accounts
  • Cashier’s checks, money orders, and other official items issued by a bank

What is Not Insured by FDIC?

There are several non-deposit investment products and other related items that are not covered by FDIC insurance, even if they might be available in a financial institution’s lobby, through the mail, by phone, or online. These include:

  • Stocks, bonds, or mutual fund investment accounts
  • Municipal securities
  • Crypto assets
  • Life insurance policies
  • Annuities
  • Safe deposit box contents
  • Losses due to fraud

What happens when a bank fails?

A bank “fails” when it can’t meet its financial obligations to creditors and depositors. This could happen because the bank has become insolvent or because it no longer had enough liquid assets to fulfill its payment obligations.

When a bank fails, the FDIC takes over the bank and will either sell the failed bank to a more solvent bank or take over operation of the bank itself. Ideally, depositors who have money in the failed bank experience no change in using the bank, will still have access to their money, and can use their debit cards and checks as usual. If the failed bank is sold to another bank, account holders automatically become customers of that bank and may receive new checks and debit cards.  Account numbers may be changed according to the policies and procedures of the new bank.

 

For more information about the FDIC, FDIC insurance, specific coverage levels and categories, and more, visit the FDIC website at www.fdic.gov.

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