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What Is the FDIC & How Does It Work?

May 11, 2020 · 3 minute read

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What Is the FDIC & How Does It Work?

These days, if you’re feeling some anxiety about your bank account, it might be because of the fees you’re paying, the low interest you’re getting, or worries about identity theft and cyber fraud.

What you might not be giving much thought to is the prospect of losing all the money you have in your account if your financial institution fails. And that’s because the Federal Deposit Insurance Corporation (FDIC) has made a promise to protect those accounts—up to $250,000—if that should happen.

People might take that guarantee for granted now, which means you might not know much about the FDIC beyond what you’ve seen on signs at the bank when (or if) you go inside.

But there’s a lot of history behind this independent government agency—and, as banking evolves, it’s important to know what it does and doesn’t keep safe.

A Brief History of the FDIC

You might have learned a little about the FDIC back in high school, when you studied the Great Depression. After thousands of banks failed, the FDIC was created in 1933 to boost confidence in the U.S. financial system.

In January 1934, the FDIC began insuring deposits , covering them up to $2,500. That number has increased through the years, of course, most recently with the Emergency Economic Stabilization Act of 2008.

President George W. Bush signed the act to temporarily raise FDIC insurance coverage from $100,000 to $250,000 per depositor during the financial crisis. President Barack Obama made the coverage hike permanent in 2010 with the signing of the Dodd-Frank Wall Street Reform and Consumer Protection Act .

Okay, enough of the history lesson—what you might want to know is what all that means for you today.
Well, for one thing, since its creation, no depositor has lost any money from an FDIC-insured deposit .

This means that unlike your great-grandparents, you can put your money into an eligible financial institution and know it’s more secure than stuffing it under your mattress. (Yes, that used to be a thing for many savers.)

Also of note: Though it’s the customers’ money that’s covered by the FDIC, the agency is funded by premiums paid for by banks and from earnings on investments in U.S. Treasury securities.

There are rules and limits you should know about, however, if you want to make the most of the FDIC’s coverage. Here are some basics:

Not Every Financial Institution Is Covered by the FDIC

The FDIC insures deposits in most banks and savings associations, but not all of them. Every FDIC-insured depository institution must display an official sign at each teller window or teller station, so that’s an easy way to check.

Or you can find out if your deposits are insured by using the FDIC BankFind tool .
If you’re using an online bank or a mobile-first financial product, the company’s website should contain information about its coverage.

The National Credit Union Administration (NCUA), created by Congress in 1970, covers federally insured credit unions in much the same way as the FDIC, including deposits up to $250,000.

Not Every Account Is Eligible for FDIC Insurance

The FDIC insures all deposit accounts at insured banks and savings associations, including checking, savings, money market accounts, and certificates of deposit (CDs) up to the FDIC’s limits.

Certain retirement accounts may qualify for insurance, as well, but only when placed in certain types of investments and in accordance with all FDIC requirements .

Retirement accounts that are insured (up to $250,000 total at a single institution) include Traditional IRAs, Roth IRAs, and self-directed 401(k) plans.

Money invested in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities isn’t insured—even if you purchased those products from an insured financial institution.

If a Bank Fails, You Should Be Able to Recover Your Money Promptly

When a bank fails, the FDIC has two jobs: First, it pays depositors up to their insurance limit.

Second, as the receiver of the failed bank, it collects and sells the assets of that institution and settles its debts, including claims for deposits in excess of the insured limit.

Because of the FDIC safety net, you won’t likely see fearful customers lining up to get their money the way they did before deposit insurance was established.

Still, when a bank closes, it affects depositors, creditors, and borrowers—and naturally there are questions about automatic deposits and payments, earned interest, outstanding checks, and more. The FDIC states that it will post information as promptly as possible, or you can contact the agency at 877-ASK-FDIC.

Other Options for Your Money

When you’re deciding who to trust with your money, whether it’s $250,000 or $2,500, you might want to go with a financial institution that takes security seriously.

SoFi keeps the hard-earned dollars in your SoFi Money® cash management account safe by partnering with FDIC-insured banks.

That makes SoFi Money customers eligible for up to $1,500,000 of FDIC insurance. (Currently, there are six banks available to accept deposits at $250,000 per bank.)

Learn more about SoFi Money today!

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Each business day, cash deposits in SoFi Money cash management accounts are swept to one or more sweep program banks where it earns a variable interest rate and is eligible for FDIC insurance. FDIC Insurance does not immediately apply. Coverage begins when funds arrive at a program bank, usually within two business days of deposit. There are currently six banks available to accept these deposits, making customers eligible for up to $1,500,000 of FDIC insurance (six banks, $250,000 per bank). If the number of available banks changes, or you elect not to use, and/or have existing assets at, one or more of the available banks, the actual amount could be lower. For more information on FDIC insurance coverage, please visit . Customers are responsible for monitoring their total assets at each Program Banks to determine the extent of available FDIC insurance coverage in accordance with FDIC rules. The deposits in SoFi Money or at Program Banks are not covered by SIPC.
SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.


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