When you entrust your money to a financial institution, you want to ensure it's safe and secure. FDIC insurance provides a safety net, so you can enjoy peace of mind knowing your deposits are protected.
But what is FDIC insurance? This article will provide an overview of FDIC insurance, what it covers and how it works.
What is FDIC Insurance?
The Federal Deposit Insurance Corporation (FDIC) is an independent U.S. government agency established in 1933 to protect bank deposits and restore trust in the American banking system during the Great Depression.
The FDIC has several responsibilities, including:
- Regulating financial institutions to ensure they comply with consumer protection laws.
- Acting as the receiver for failed banks to sell assets and settle debts.
- Educating consumers on a variety of financial topics.
Perhaps most important, the FDIC provides deposit insurance that protects your money in case of a bank failure.
What does FDIC Insurance Cover?
FDIC insurance covers:
- Checking accounts
- Savings accounts
- Money market deposit accounts (MMDAs)
- Time deposits, such as certificates of deposit (CDs)
- Cashier's checks, money orders and other official items issued by a bank
FDIC insurance doesn't cover investment products such as stocks, bonds, mutual funds, annuities, or U.S. Treasury bills, bonds, or notes. It also doesn't cover life insurance policies, contents stored in a safety deposit box, or money kept in digital payment apps, such as PayPal, Venmo, or Cash App.1
If your money is in a covered account and the financial institution is FDIC-insured, the standard insurance amount is $250,000 per account owner, per bank, for each account ownership category.2
Ownership categories include accounts owned by a single individual, joint accounts, revocable trust accounts and more. This means an account with a single owner has up to $250,000 in coverage, and a joint account (owned by two or more people) has up to $250,000 in coverage per co-owner.
Here are a few examples to help illustrate how FDIC insurance limits work:
Single Accounts
Let's say you have $50,000 in a checking account and $250,000 in a savings account with the same bank, and you're the sole owner of each account. FDIC insurance covers up to $250,000 — the remaining $50,000 would not be covered.
See AlsoSynovus Middle Market BankingFDIC insurance doesn't cover money stored in digital payment apps,such as PayPal, Venmo, or Cash App.
On the other hand, say you have $50,000 in a checking account withBank A, $250,000 in a savings account with Bank B, and $100,000 in aCD with Bank C. Assuming all three banks are FDIC insured, you wouldbe fully covered because the FDIC limit applies separately to each bank.
Joint Account
You have a joint checking account with your spouse with a balance of$300,000. Your entire balance is covered by FDIC insurance becauseeach owner has up to $250,000 of FDIC insurance coverage.
Mix of Ownership Categories
You have $250,000 worth of CDs at a bank in an account that you ownindividually. At the same bank, you have a joint checking account withyour spouse with a balance of $500,000. Your spouse has no otheraccounts with the bank.
All of your assets would be covered because you have $250,000 ofcoverage for the CDs you own individually and you and your spouseeach have $250,000 of coverage for the joint account.
However, say you and your spouse co-own CDs worth $500,000 andhave a checking account with $50,000 in it at the same bank. Becausethe two accounts fall under the same ownership category (jointaccounts), you each have $250,000 of coverage. So $50,000 of yourjointly-held assets would be uninsured if the bank went under.
How does FDIC Insurance Work?
FDIC insurance works by reimbursing customers for the balance in theircovered accounts — up to the limit — when a bank fails. Unlike othertypes of insurance, you don't need to apply to the FDIC for coverage orpay a premium. Instead, FDIC-insured banks pay a fee to participate inthe program, and coverage is automatic when you open an eligible account.3
When a bank fails, it's closed by a federal or state banking regulatoryagency because it doesn't have the financial resources to meet itsobligations.
When that happens, the FDIC reimburses the bank's customers up to themaximum amount so they don't lose all their money. Historically, theFDIC pays the bank's customers within a few days of the bank closing.4That payment can come via a deposit into a new account at anotherFDIC-insured bank or a check. You do not need to request the funds orfill out any paperwork. The reimbursem*nt happens automatically.
In some cases, another financial institution will purchase a failing bank.In that case, FDIC insurance doesn't pay customers. Instead, the buyeris responsible for ensuring their new accounts remain FDIC-insured.
