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What is the 'Federal Deposit Insurance Corporation - FDIC'

The Federal Deposit Insurance Corporation (FDIC) is the U.S. corporation insuring deposits in the United States against bank failure. The FDIC was created in 1933 to maintain public confidence and encourage stability in the financial system through the promotion of sound banking practices. The FDIC insures deposits of up to $250,000 per institution, as of 2016, as long as the bank is a member firm.

Before opening an account with a financial institution, be sure to confirm that it is FDIC insured.

BREAKING DOWN 'Federal Deposit Insurance Corporation - FDIC'

The main purpose of the Federal Deposit Insurance Corporation (FDIC) is to prevent the kind of "run on the bank" scenarios that devastated many banks during the Great Depression. Before FDIC, there was no guarantee beyond the bank's own stability. This meant that only those who were first to withdraw their money from a troubled bank would get it; those who waited stood the risk of losing their life savings overnight. As fear of bank closures started to spread, a small trickle of worried customers looking to withdraw money would soon turn into a stampede until the bank was unable to meet the withdrawal requests.

The FDIC Difference

Since practically all banks and thrifts now offer FDIC coverage, the customers have no reason to panic even if the institution falls on hard times. In case of bank failure, the FDIC covers deposits up to $250,000, which is more than enough for the majority of customers. Thus, no run on the bank is triggered, and the bank has a fighting chance to sort out its troubles under controlled circumstances.

What Accounts Are Covered?

Checking accounts, savings accounts, Certificates of Deposit (CDs) and money market accounts are generally 100% covered by FDIC. Some trust accounts and Individual Retirement Accounts (IRAs) are covered, but only the parts that fit the type of accounts listed above. FDIC insurance does not cover any type of investment product, such as mutual funds, annuities, life insurance policies, stocks or bonds. The contents of safe-deposit boxes are not included in FDIC coverage either. Cashier's checks and money orders issued by the failed bank remain fully covered by FDIC.

Contacting FDIC

A customer can file a claim with FDIC as early as the day after a bank or thrift folds. The claim can be filed online through the FDIC website. A phone hotline allows bank customers to get personalized assistance at no cost, by calling 877-275-3342 (1-877-ASKFDIC).

Note that FDIC only insures against bank failures. Instances of fraud, theft and similar loss are handled by the bank.

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