What is the FDIC?
The Federal Deposit Insurance Corp., an independent federal agency, performs several functions. But arguably his most important job is to insure the money you have deposited in an FDIC member bank. The FDIC generally insures a bank account up to $ 250,000 in the event of your bank failing.
For every American, FDIC insurance means you can be sure you’re hiding money in an FDIC-insured bank, rather than hiding it under your mattress. The FDIC says no depositor has lost a single penny of insured money since 1933, when the agency was established. FDIC coverage automatically takes effect when you open a bank account.
What is the FDIC?
The federal government created the FDIC through the Banking Act of 1933 in response to the banking crisis during the Great Depression. FDIC bank deposit insurance, offering coverage of $ 2,500, came into effect on January 1, 1934.
FDIC insurance produced almost immediate results in rekindling public confidence in banks – many Americans had withdrawn their money from banks and kept it at home – and stabilized the banking system. In 1934, only nine banks went bankrupt. By comparison, more than 9,000 banks had collapsed in the previous four years. By 1933, depositors saw $ 140 billion in bank deposits disappear amid the recent wave of bank failures.
To avoid losing your money, make sure your bank deposits are FDIC insured. To find out if your physical or online bank is FDIC insured, check out the FDIC’s BankFind tool. As of August 2021, nearly 5,000 financial institutions in the United States were FDIC insured. Some banks are not members of the FDIC, which means that the deposits are not insured by the FDIC, although they may be insured by a different entity.
What accounts does the FDIC insure?
A range of deposits in FDIC member banks are insured by the FDIC. These include:
- Check the accounts.
- Savings accounts.
- Money market accounts.
- Certificates of deposit, or CDs.
- Bank checks.
- Financial orders.
- Deposit accounts held in self-directed retirement accounts, including individual retirement accounts and self-directed retirement plans such as a 401 (k).
- Deposit accounts held in revocable and irrevocable trusts.
Typically, the FDIC covers $ 250,000 per depositor and per FDIC insured bank in each category of ownership. This encompasses both principal and interest of an insured account.
So let’s say you have the following deposits in your name only (called single accounts) at an FDIC insured bank: $ 5,000 in a money market account, $ 20,000 in a savings account, $ 25,000 in a checking account and $ 200,000 on a CD. The total amount comes to $ 250,000, which means that all money in all of your accounts would be insured.
The calculations change if you have joint accounts in your name and someone else’s name, such as your spouse, at the same FDIC-insured bank. Let’s say you and your spouse jointly own a CD of $ 350,000 and a savings account of $ 150,000 at the same FDIC insured bank. In this case, the two accounts would be added together and insured up to $ 500,000. Distributed between the two spouses, this would result in insurance coverage of $ 250,000 for each co-owner. In this example, it is assumed that the couple does not have other joint accounts at the same bank.
Now what if you want to park over $ 250,000 while being FDIC insured? Here are four moves that can do the trick:
- Create accounts in more than one institution. This only works if the institutions are separated, however. To make sure they’re not part of the same organization, search online for institutions’ FDIC certificate numbers. Each institution has its own FDIC number.
- Set up accounts in different ownership categories. You may be able to insure deposits over $ 250,000 if you open different types of accounts, such as individual, joint, or business accounts.
- Set up a brokerage deposit account. Most major investment brokerage firms offer FDIC insured bank accounts.
- Trust a network. Several networks can help you insure large sums of money. They include IntraFi network deposits, which break down large deposits into smaller CDs at FDIC-insured banks; Impact Deposits Corp., which allocates large deposits to money market accounts at FDIC-insured community banks; and a Max Current Account, which allocates deposits among FDIC-insured banks seeking more interest income. These services may incur charges.
Keep in mind that if you have an account with a credit union, the National Credit Union Administration insures deposits at NCUA institutions using the same $ 250,000 formulas as the FDIC.
How does FDIC insurance work?
Fortunately, banks rarely fail in the United States In 2020, only four banks in the United States went bankrupt, according to the FDIC.
But if your bank goes bankrupt after the FDIC unsuccessfully seeks a buyer for the bank’s assets, the FDIC aims to issue a check for an insured deposit within two business days of the default. Once an FDIC insured bank closes, interest stops accruing on all accounts.
If the money you deposited in a bankrupt FDIC insured bank exceeds the FDIC’s $ 250,000 insurance limits, you will lose any money in excess of those limits. For example, if you had a single account in the failed bank and it contained $ 255,000, the $ 5,000 over the single account limit would not be insured.
What does the FDIC not cover?
The FDIC does not insure the following offered by FDIC insured banks:
- Mutual fund.
- State securities.
- Municipal titles.
- US Treasury bills, bonds and notes.
- Life insurance policies.
- Safes and their contents.
The FDIC also does not cover losses resulting from fraud or theft, as these crimes are not related to bank failure. Therefore, if a cyber crook steals all the money from your checking account, for example, the FDIC will not cover the loss. However, federal law provides protection in many cases when money has been slipped out of a bank account.
If you believe you have been the victim of bank fraud or theft, notify your financial institution’s fraud division as soon as possible.
Copyright 2021 US News & World Report