Does the FDIC Cover Identity Theft?

The Federal Deposit Insurance Corporation (FDIC) provides protection for deposits in U.S. banks and thrifts in the event of a bank failure. It does not provide protection against identity theft. When a third party gains access to your bank account and conducts transactions without your consent, the FDIC does not have jurisdiction to protect consumers against this type of criminal activity, which is outside of its role of ensuring confidence in the U.S. banking system.

What the FDIC Covers

The Federal Deposit Insurance Corporation (FDIC) only provides coverage for deposits in eligible FDIC insured accounts in the unlikely event of the financial failure of that bank or savings institution. Eligible accounts for insurance coverage are checking accounts, savings accounts, money market deposit accounts, certificates of deposit (CDs), cashier's checks, money orders, and other official items issued by an FDIC-covered bank.

Each one of your eligible accounts per insured bank is covered for a total of up to $250,000. If you have a checking account with a $300,000 balance at an FDIC-covered bank, $50,000 of your funds in that account are not insured by the FDIC and should be transferred to another insured bank for FDIC coverage. The same rules hold true for business accounts but do not extend to mutual funds, which are not covered.

What to Do in Case of Identity Theft

When you notice suspicious activity on your bank account, report your loss to your financial institution and local law enforcement authorities right away. The FDIC also recommends notifying your local, state, or federal consumer protection agency. Use this directory to find the contact information for your state's consumer protection office.

By acting quickly, you increase your chances of recovering your lost funds and help local authorities protect other members in your community. Some best practices to catch identity theft early are to check your monthly bank statement every month for any suspicious activity. If you receive paper copies, contact your bank right away if you do not receive one by its usual arrival date. Identity thieves may try to intercept or divert account statements to get access to your funds.

Identity Theft Protection Plans

Most identity theft protection services offer similar levels of hand-holding through the identity theft prevention and recovery processes, but you can usually do most—if not all—of what they offer yourself for free. What’s more, the insurance is subject to numerous restrictions and limitations, most notably not kicking in at all until another policy you probably already have is paid up.

Perhaps the biggest problem with any identity theft protection service is that there’s no way to know how well it works unless you find out that your identity is stolen and you need to take advantage of the service’s recovery assistance and insurance.

So do you really need an identity theft protection service? According to the Bureau of Justice Statistics’ 2016 Crime Victimization Survey, which is, believe it or not, the most recent data available, only 12% of victims experienced a financial loss for which they were not reimbursed. It's unclear whether (or how much) these figures will change when the next survey is released.

If you’re considering signing up for any identity theft protection service, read the terms and conditions carefully before handing over your credit card number to see what you’re really getting for your money. And be sure the price is nailed down, including what happens after any free introductory period ends. Also, watch for arbitration clauses that could ban your joining a class-action lawsuit should problems arise.

The Bottom Line

Though the FDIC does protect deposit accounts against bank failures, it does not cover any losses related to identity theft. To protect against identity theft, it is recommended to monitor your bank accounts, report any irregularities to your bank and law enforcement agencies, and depending on certain factors, purchasing identity theft protection plans. One of the best credit monitoring services could prove useful in this endeavor, as several of them offer identity protection tools and services.