Understanding FDIC Insurance
It’s natural to wonder exactly how a bank safeguards your money. Fortunately, the Federal Deposit Insurance Corporation (FDIC) insurance exists for this very reason: to help protect your funds once deposited. Read on to explore the purpose of FDIC insurance, how it works, and what it covers.
What Is FDIC Insurance?
The FDIC is an independent government agency that helps protect bank depositors from the loss of uninsured deposits at an FDIC-insured bank. This organization oversees FDIC deposit insurance, which provides some protection to bank customers if an FDIC-insured institution fails. In other words, FDIC insures your money at the bank up to certain limits.
A bank failure is an unlikely situation, but it does happen. When this occurs, the FDIC provides depositors with an insurance payout. That can be up to $250,000 per depositor per institution for each account ownership category. When two banks failed in Q1 2023, regulators took steps above and beyond the $250,000 limit to protect deposits.1,2
Remember that if your bank is an FDIC-insured institution, you don’t need to apply for FDIC insurance because coverage is automatic.
The Purpose of FDIC Insurance
FDIC insurance covers traditional deposit accounts of up to $250,000 per depositor. These traditional deposit accounts include the following:
- Checking accounts
- Savings accounts
- Certificates of deposit (CDs)
- Money market bank deposit accounts
- Prepaid cards (assuming they meet all FDIC requirements)
Certificates of deposit (CD) are time deposits offered by banks, thrift institutions, and credit unions. They may offer a slightly higher return than a traditional bank savings or checking account, but they may also require a higher deposit amount. If you sell before the CD reaches maturity, you may be subject to penalties.
Bank savings accounts and CDs generally provide a fixed return, whereas the value of money market funds can fluctuate. Money market funds are investment funds that seek to preserve the value of your investment at $1.00 a share. However, it’s possible to lose money by investing in a money market fund.
FDIC Insurance Limitations
Now that we understand what FDIC insurance covers let’s also look at what it doesn’t cover. The FDIC states that it does not cover the following:3
- Stocks
- Bonds
- Mutual funds
- Life insurance policies
- Annuities
- Municipal Securities
- Safety deposit boxes or their contents
- US Treasury bills, bonds, or notes
FDIC Insurance and You
As mentioned above, the FDIC insures up to $250,000 for a single or joint account per depositor; This means that you can have either one account or multiple accounts at the same bank, but only $250,000 may be insured.
1. FDIC.gov, March 1, 2023
2. FoxBusiness.com, March 12, 2023
3. FDIC.gov, March 1, 2023
