When you open a bank account, you expect the money you deposit to be safe. However, these accounts don't work as a personal vault, which means your money doesn't just sit around waiting for you to make a withdrawal when you need access to it. Banks usually keep a certain amount of cash on hand but the majority of your money is lent out to others.
When banks can't keep up with the demand for withdrawals, they may have to turn depositors away. When more customers want their money and can't get it, they end up losing confidence, resulting in a panic. This, in turn, can trigger a domino effect, leading to a failure in the banking system, which the U.S. experienced during the Great Depression.
- The Federal Deposit Insurance Corp. (FDIC) protects consumers against loss, up to a certain amount, if their bank or thrift institution fails.
- Not all banking institutions are insured by the FDIC.
- Eligible bank accounts are insured up to $250,000 for principal and interest.
- The FDIC doesn't insure share accounts at credit unions.
What Does it Mean to Be FDIC-Insured?
The Federal Deposit Insurance Corp. (FDIC) is an independent agency of the U.S. government that protects you against loss of deposit if your bank or thrift institution fails and is FDIC-insured. To keep public confidence, the federal government created the agency during the Depression in 1933.
So, if you have money in an FDIC-insured bank account and the bank fails, the agency reimburses you for any losses you incur.
Many banks use the fact that they're insured as a selling point, even though it isn't a mandate. In other words, an uninsured bank can't compete effectively in an industry where consumers expect their money to be protected. To see if your bank is FDIC-insured, check out the FDIC Bank Find Suite page.
What Is Covered?
The FDIC doesn't insure all accounts. Insured accounts include negotiable orders of withdrawal (NOW), money market deposit accounts (MMDA), checking and savings accounts, and certificates of deposit (CD). FDIC insurance covers the principal and interest of an account, not exceeding the $250,000 limit. For a list of the types of accounts and how they are covered, see the chart below.
|What and How Much Is Covered?|
|Single Account||$250,000 per owner|
|Certain Retirement Account||$250,000 per owner|
|Joint Account||$250,000 per co-owner|
|Revocable Trust||Owner is insured $250,000 per beneficiary|
|Irrevocable Trust||$250,000 for the trust; additional coverage is available under specific conditions.|
|Employee Benefit Plan||$250,000 for the noncontingent interest of participants|
|Corporation, Partnership, or Unincorporated Association Account||$250,000 per entity|
|Government Account||$250,000 per custodian|
If you have a savings account with a balance of $50,000 and a CD with a $150,000, both accounts are insured, as they fall under $250,000. If you and your spouse have a joint account with a $250,000 balance and $200,000 in another eligible account, both accounts are covered, as their combined value falls under the $250,000 per co-owner rule.
What Isn't Covered
The FDIC doesn't cover all types of accounts. Financial instruments, such as stocks, bonds, money market funds, cryptocurrency, U.S. Treasury securities (T-bills), safe deposit boxes, annuities, and insurance products aren't insured by the FDIC.
The FDIC doesn't insure stocks, bonds, cryptocurrency, money market funds, U.S. Treasury securities, safe deposit boxes, annuities, or insurance products.
The FDIC also doesn't insure regular shares and share draft accounts of credit unions. Similar to the FDIC, the National Credit Union Share Insurance Fund, administered by the National Credit Union Administration (NCUA), insures accounts at credit unions.
The Advisor Insight
Jeff Rose, CFP®
Good Financial Cents, Nashville, TN
In general, nearly all banks carry FDIC insurance for their depositors. However, there are two limitations to that coverage. The first is that only depository accounts, such as checking, savings, bank money market accounts, and CDs, are covered.
The second is that FDIC insurance is limited to $250,000 per depositor, per bank. That means if you have $500,000 sitting in one bank, only half of the money is insured.
The way to get around this limitation is to spread your money across more than one bank. If you have $500,000 held in a bank account, you can put $250,000 in one bank and $250,000 in another one. But coverage isn't segregated by branches within the same banking institution, so remember that both banks need to be completely unrelated.
What Is the FDIC?
The Federal Deposit Insurance Corp. (FDIC) guarantees bank customers against loss, up to a certain amount, if their bank or thrift institution fails.
To What Amount Does the FDIC Insure Bank Accounts and Some Other Financial Products?
Qualifying bank accounts are insured up to $250,000 for principal and interest. The agency also insures accounts such as negotiable orders of withdrawal (NOW), money market deposit accounts (MMDA), checking and savings accounts, and certificates of deposit (CD).
Does the FDIC Insure Deposits at Credit Unions?
No, the FDIC doesn't insure regular shares and share draft accounts held at credit unions. Instead, the National Credit Union Share Insurance Fund, run by the National Credit Union Administration (NCUA), insures credit union accounts.
The Bottom Line
The FDIC protects bank account holders against loss, up to a certain amount, if their bank or thrift institution fails. However, not all banking institutions or types of financial accounts are insured by the FDIC. Eligible bank accounts are insured up to $250,000 for principal and interest. Usually, banks will advertise this protection for their customers, or you can ask a banker when considering opening a new account. If your money is deposited in a credit union, be aware that the FDIC doesn't insure those accounts, but they are covered by the NCUA.
Federal Deposit Insurance Corporation. "History of the FDIC."
Federal Deposit Insurance Corp. "Understanding Deposit Insurance."
Federal Deposit Insurance Corp. "Your Insured Deposits."
National Credit Union Association. "Share Insurance."