What Is an Insured Financial Institution?

An insured financial institution is any bank or savings institution covered by some form of deposit insurance.

Key Takeaways

  • An insured financial institution is any bank or savings institution covered by some form of deposit insurance.
  • State and national banks must be insured financial institutions, required by law to have Federal Deposit Insurance Corporation (FDIC) coverage.
  • The National Credit Union Administration (NCUSIF) is a federal program similar to the FDIC that covers federally insured credit unions.

Understanding Insured Financial Institutions

State and national banks must be insured financial institutions, required by law to have Federal Deposit Insurance Corporation (FDIC) coverage. The Deposit Insurance Fund insures the deposits and protects the depositors of insured banks and resolves failed banks. Credit unions are covered by the National Credit Union Share Insurance Fund, or NCUSIF.

Federal Deposit Insurance Corporation (FDIC)

Checking accounts, savings accounts, certificates of deposit (CDs), and money market accounts are generally fully covered by FDIC. Coverage extends to trust accounts and individual retirement accounts (IRAs), but only those portions composed of checking or savings accounts, CDs, or money market accounts.

FDIC insurance does not cover products such as mutual funds, annuities, life insurance policies, stocks, ETFs, or bonds. The contents of safe-deposit boxes are also not included in FDIC coverage. Cashier's checks and money orders issued by a failed bank remain fully covered by FDIC.

Depositors Insurance Fund (DIF)

The DIF is reduced by loss provisions associated with failed banks and by FDIC operating expenses. The FDIC maintains the DIF by assessing depository institutions an insurance premium. The amount each institution is assessed is based both on the balance of insured deposits as well as on the degree of risk the institution poses to the insurance fund. When a bank becomes insolvent, the FDIC is appointed receiver of the failed institution.

As the receiver, the FDIC takes title to the failed institution's assets and liquidates them. As the deposit insurer, it pays off the failed institution's deposit liabilities, or pays another institution to assume them. Because the failed institution's assets are almost always worth less than its deposit obligations, a bank failure results in a loss to the DIF.

National Credit Union Administration (NCUSIF)

The National Credit Union Administration, or NCUA, is the independent agency that administers the NCUSIF (National Credit Union Share Insurance Fund). Like the FDIC's Deposit Insurance Fund, the NCUSIF is a federal insurance fund backed by the full faith and credit of the United States government. The NCUSIF protects members’ accounts in federally insured credit unions​​​​​​​, in the unlikely event of a credit union failure.

The NCUSIF covers the balance of each member’s account, up to $250,000, including principal and posted dividends through the date of the failure.

NCUA does not insure money invested in stocks, bonds, mutual funds, ETFs, life insurance policies, annuities, or municipal securities, even if these investment or insurance products are sold at a federally insured credit union. Credit unions often provide these services to their members through third parties, and the investment and insurance products are not insured by the NCUSIF.