The role of the Federal Deposit Insurance Corporation (FDIC) in protecting depositors’ bank accounts is important for everyone to understand.
Most banks are insured by the FDIC, but not all. Moreover, there are usually limits on how much can be covered in an individual person’s accounts and what kind of financial products are eligible for this insurance at all.
Read on to learn the policies and practices of the FDIC and how you can find out the status of your bank.
What FDIC Insurance Means
In 1933, in the wake of the Great Depression, the Federal Deposit Insurance Corporation , an independent agency, was created to protect consumers if the worst happens and a financial institution fails. The agency has shown lasting power. Reports from 4,706 commercial banks and savings institutions insured by the FDIC reflected aggregate net income of $68.4 billion in fourth quarter 2022.
So what exactly does FDIC insurance cover? Typically, all deposit accounts at insured banks up to the limit, currently $250,000 per depositor, per bank, per ownership category, including principal and any accrued interest through the date of an insured bank’s closing. (With the closures of Silicon Valley Bank and Signature Bank, the FDIC has removed the limit for deposits at the shuttered banks.)
Generally, this insurance covers your deposit up to that limit of $250,000 if a bank fails, but it does not cover losses due to fraud and theft.
What FDIC Insurance Does and Does Not Cover
These deposit accounts are covered by the insurance up to the $250,000 limit:
• Checking accounts
• Savings accounts
• Money market accounts
• Certificates of deposit (CDs)
Important to note: The FDIC does not insure the money you invest in the following products, even if they were purchased from an FDIC-insured bank:
• Stocks
• Bonds
• Mutual fund shares
• Life insurance policies
• Annuities
• Municipal securities
• Safe deposit boxes or their contents
• U.S. Treasury bills, bonds, or notes (these are backed by U.S. government)
💡 Tip: Typically, checking accounts don’t earn interest. However, some accounts do, and online banks are more likely than brick-and-mortar banks to offer you the best rates.
How to Learn if Your Bank Is FDIC-Insured
To find out if your bank is insured by the FDIC, go to the BankFind Suite on the FDIC website. The “Name & Location Search” allows you to find FDIC-insured banks and branches from today, to last year, and all the way back to 1934.
The FDIC offers another level of scrutiny for all who are interested. Through its Institutional Financial Reports , you can find these details on all FDIC-insured banks: locations, comprehensive financial reports, demographic reports, current data, and historical data going back to 1992.
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Recovering the Money if Your Bank Is FDIC-Insured
Federal law requires the FDIC to pay deposit insurance “as soon as possible.” For insured deposits — those within the deposit insurance limits — the FDIC almost always pays insured depositors within a “few business days of a closing, usually the next business day.”
The FDIC says, “Payment is made either by providing each depositor a new account at another insured institution or by issuing a check to each depositor.” Note: the FDIC does not guarantee that if the funds move to a new bank they will earn the same interest rate.
The limited exceptions that may take longer to process “primarily are deposits that both exceed $250,000 and are linked to trust documents, and accounts established by a third-party broker on behalf of other individuals,” says the FDIC.
False rumors were spread in the past that people could be forced to wait up to 99 years to get their money back. The agency says, “The FDIC occasionally receives calls from depositors about this myth; it often comes from consumers who attended a financial seminar and heard that the FDIC can and will take up to 99 years to pay the depositor’s insured deposits after a bank is closed. This claim is false and entirely without merit.”
Recommended: How to Keep Your Bank Account Safe Online
Understanding How the FDIC Works
You may wonder where the FDIC gets the money to cover lost accounts after a bank fails.
The FDIC says it receives no Congressional appropriations. It is “funded by premiums that banks and savings associations pay for deposit insurance coverage. 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 directly supervises and examines about 5,000 banks and savings associations for “safety and soundness.” Banks can be chartered by the states or by the Office of the Comptroller of the Currency. Banks chartered by states also have the choice of whether to join the Federal Reserve System. The FDIC is the primary federal regulator of banks that are chartered by the states that do not join the Federal Reserve System.
The FDIC also examines banks for compliance with consumer protection laws, including the Fair Credit Billing Act, the Fair Credit Reporting Act, the Truth in Lending Act, and the Fair Debt Collection Practices Act.
Recommended: How Are Financial Institutions Governed?
The Takeaway
The Federal Deposit Insurance Corporation (FDIC) was created by Congress in 1933 to maintain confidence in the American banking system and protect consumers if a financial institution fails. Most U.S. banks are covered by FDIC insurance, but the coverage typically only applies to accounts of $250,000 or less. Checking accounts, savings accounts, money market accounts, and certificates of deposit are covered. Should an insured bank fail, the FDIC will restore those funds up to the limit within a short time.
FAQ
What is the FDIC?
The Federal Deposit Insurance Corporation is an independent agency, created 90 years ago, with a mission to maintain confidence in the nation’s financial system. To keep that system stable, the FDIC insures deposits; examines and supervises financial institutions for safety, soundness, and consumer protection; and manages receiverships.
Is there a limit on how much the FDIC will insure?
Typically, the FDIC insures up to $250,000 per depositor, per institution and per ownership category.
Am I supposed to take out FDIC insurance on my bank account?
No, depositors do not need to apply for FDIC insurance. Coverage is automatic whenever a deposit account is opened at an FDIC-insured bank or financial institution. “If you are interested in FDIC deposit insurance coverage, simply make sure you are placing your funds in a deposit product at the bank,” the FDIC says.
Photo credit: iStock/ilbusca
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