What is the Federal Deposit Insurance Corp. (FDIC)?
The Federal Deposit Insurance Corp. (FDIC) is an independent federal agency that insures deposits in U.S. banks and thrifts in the event of bank failures. Formed in 1933, its mission is to maintain public confidence and encourage stability in the financial system by promoting sound banking practices.
As of 2023, the FDIC insures deposits up to $250,000 per depositor for institutions that are member firms. It’s crucial for consumers to verify if their banking institution is FDIC-insured.
Key Takeaways
- The FDIC insures deposits in U.S. banks and thrifts to safeguard against bank failures.
- Coverage is up to $250,000 per depositor, per FDIC-insured bank.
- FDIC coverage includes checking and savings accounts, certificates of deposit (CDs), money market accounts, IRAs, and trust accounts.
- Products not covered by the FDIC include mutual funds, annuities, life insurance policies, stocks, and bonds.
The primary objective of the FDIC is to avert ‘run-on-the-bank’ scenarios, which caused widespread bank failures during the Great Depression. For instance, panic-induced large crowds attempted to withdraw their money simultaneously, leading to banks’ inability to meet the demand. This scenario poses a risk of losing savings overnight for those who aren’t quick enough to withdraw their funds.
The FDIC Explained
Today, nearly all banks and thrifts offer FDIC coverage, providing consumers with peace of mind regarding their deposits. This allows banks to tackle issues without triggering panic withdrawals.
In the event of a bank failure, the FDIC covers deposits up to $250,000 per insured bank, for each ownership category such as retirement accounts and trusts. Depositors with assets exceeding this amount should distribute their funds across multiple banks.
Example 1:
If you have $200,000 in a savings account and $100,000 in a CD, $50,000 will remain uninsured.
Example 2:
For a couple with $500,000 in a joint account and $250,000 in a retirement account, the total $750,000 would be fully covered by the FDIC, as each co-owner’s share in the joint account and the retirement account are separately insured.
The FDIC offers an interactive tool to help consumers check if their assets are covered.
FDIC Coverage Details
The FDIC fully covers checking accounts, savings accounts, CDs, and money market accounts. Coverage also extends to individual retirement accounts (IRAs) and various types of trust accounts. If you have over $250,000 in an account type at a single bank, diversifying funds across multiple banks can ensure full FDIC coverage.
FDIC insurance doesn’t extend to mutual funds, annuities, life insurance policies, stocks, or bonds. Contents of safe-deposit boxes also aren’t covered. Cashier’s checks and money orders issued by a failed bank, however, remain insured.
Eligible business accounts from corporations, partnerships, LLCs, or unincorporated organizations at a bank are also FDIC-covered.
Claiming FDIC Insurance
Customers can file claims with the FDIC starting the day after a bank or thrift collapses. Claims can be submitted online through the FDIC’s website or by calling 877-275-3342 for personalized assistance at no cost. The FDIC only insures against bank failures and does not cover losses due to fraud or theft. Identity theft cases fall outside the FDIC’s jurisdiction.
Special Considerations
While banks are covered by the FDIC, deposits in credit unions are protected by the National Credit Union Share Insurance Fund (NCUSIF), regulated by the National Credit Union Administration (NCUA). This fund also insures individual accounts up to $250,000.
Frequently Asked Questions
What Does FDIC Stand For?
The full name is the Federal Deposit Insurance Corp.
Why Was the FDIC Created?
The main purpose of the FDIC is to prevent ‘run-on-the-bank’ scenarios, which led to numerous bank failures during the Great Depression.
Are My Stock and Mutual Fund Holdings Protected by the FDIC?
No, FDIC insurance does not cover mutual funds, stocks, annuities, life insurance policies, or bonds.
Conclusion
The FDIC serves a vital role in the U.S. banking system by insuring deposits up to $250,000 per depositor, instilling confidence and stability in the financial sector. It’s important to confirm that your bank is FDIC-insured to ensure your savings are protected.
Related Terms: Great Depression, bank failure, deposit insurance, National Credit Union Share Insurance Fund, run on the bank.
References
- Federal Deposit Insurance Corp. “FDIC: History of the FDIC”.
- Federal Deposit Insurance Corp. “Your Insured Deposits”, Page 3.
- Federal Deposit Insurance Corp. “Your Insured Deposits”, Pages 2-3.
- National Credit Union Administration. “Share Insurance Fund Overview”.
