Takeaways
- FDIC keeps your funds safe if a federally insured bank fails and your deposits are at risk.
- Determine if your bank is FDIC-insured by asking a representative or looking for the FDIC sign.
- Eligible bank accounts are insured up to $250,000 per depositor, bank, and ownership category.
- FDIC insurance is backed by the full faith and credit of the United States government.
- FDIC deposit insurance covers a variety of savings accounts and investments.
Where do you put your money when you have savings? Stashing funds under your mattress or in a safe won’t do you much good. That’s why people turn to banks to keep their funds. Banks have long been a stable and safe place to deposit your cash. However, recent bank failures like Silicon Valley Bank should remind you that (although rare) bank failures do happen.
To help infuse trust into banking, the Federal Deposit Insurance Corporation, or FDIC, was created in 1933 to insure deposits at banks and other intuitions. Fundamentally, when you put your money into a bank, you expect your cash to be safe. Safety is what the FDIC essentially guarantees. Storing your capital with a bank is done because there is a high degree of trust between the depositor and the bank. Maintaining faith in the banking system is vital to the economy’s health. The FDIC helps boost that trust.
Here is a more detailed look at what the FDIC does and what deposits are actually insured.
What is the FDIC?
The FDIC is an independent agency of the United States government that protects bank depositors from losing their insured deposits if an FDIC-insured bank or savings association fails[1]. If your FDIC-insured bank fails, the agency will reimburse you for your losses up to your qualifying limit. This level of insurance in the banking system allows you to safely store cash, short-term investments, and retirement accounts in banks.
Banks and financial institutions tout the fact that they are FDIC-insured, which can be a primary selling point to attract inbound funds. Do your research to make sure your bank is FDIC-insured. There are still banks (operating effectively) that are uninsured. Personal finance experts recommend keeping your funds for safekeeping at FDIC-insured institutions.
What Does FDIC Insurance Cover?
Unlike traditional insurance, you do not need to apply for FDIC insurance. If your money is held at an FDIC-insured bank or financial institution insurance coverage is automatically extended to your funds[2]. The FDIC insures up to at least $250,000 per depositor, per intuition, per ownership category. Here is a list of covered accounts:
- Checking Accounts
- Savings Account
- Money Market Deposit Accounts (MMAs)
- Certifications of Deposits (CDs)
- Cashier’s checks
- Money Orders
What Is Not Covered by FDIC Insurance?
It is paramount to understand what is covered by the FDIC. It is equally vital to understand what is NOT covered by FDIC insurance. Think of FDIC insurance as covering your deposit accounts at your bank or official items issued by your bank. However, FDIC insurance does not cover investments. Here is a list of securities not covered by FDIC insurance[3].
- Stocks
- Bonds
- Mutual Funds
- Life Insurance
- Annuities
- Municipal Securities
- U.S. Treasury Bill, Bonds, or Notes
Smart Tip:
While FDIC insurance does not insure U.S. Treasury bills, bonds, or notes, treasury securities are low-risk and safe investments because the full faith and credit of the U.S. federal government guarantees that interest and principal payments will be made on time[4].
Is My Bank FDIC Insured?
To find out if your bank is FDIC-insured, you can take a couple of different approaches. The easiest is to call a banking representative and ask if the bank is FDIC-insured. You can also look for the FDIC logo on a bank’s website or a physical sign in the bank (displayed like a badge of honor). If you need immediate verification, you can use the FDIC’s BankFind Tool, which allows you access to a trove of detailed information about FDIC-insured institutions and their branch locations.
FDIC Insurance: An Example
FDIC insurance applies to deposits that you hold per institution. Let’s look at an example of how FDIC insurance would work. Assume you have a $3,000 savings account, a $100,000 slush fund, and a $100,000 certificate of deposit at Bank A. In addition, you hold $150,000 of cash and investments in a Traditional IRA and $150,000 in a Roth IRA at Bank B. In this example, if Bank A fails, your $203,000 would be FDIC-insured. And if Bank B failed, $250,000 of individual retirement account savings would also be FDIC-insured, leaving $50,000 uninsured. However, if you moved the uninsured amount to Bank A, it would be insured because it is in a certain retirement account category. However, if your Traditional IRA or Roth IRA held investment securities, the FDIC would not insure these investments, only deposits in the account (see more on what the FDIC covers above).
Smart Money -> 7 Types of Certificates of Deposits
Smart Tip:
The FDIC only insures deposits. It does not cover stock, mutual funds, or other investments held at banks or financial institutions.
Who Funds the FDIC?
The FDIC does not receive Congressional funding. Instead, the FDIC is funded by premiums paid by banks and savings associations for insurance coverage. Trillions of dollars held at U.S. banks are insured by the FDIC. In the United States, virtually every bank and savings association is covered by the FDIC.
Smart Summary
Holding your savings and investments at an FDIC-insured bank is a smart money move. At the end of the day, you want to concentrate on building your wealth and increasing your net worth, not worrying about if a bank or financial institution that holds your funds is insured. FDIC insurance is a critical part of making the U.S. banking system work effectively and work smoothly and effectively, even with recent failures. FDIC insurance helps all savers focus on what truly matters.
Frequently Asked Questions
FDIC insures up to at least $250,000 per depositor, per intuition, per ownership category. This covers many savers. However, if you have over $250,000 in savings and investments, consider spreading your assets among several FDIC-insured banks. This strategy will help ensure your funds are covered.
FDIC insurance does not cover investments, such as stocks, bonds, mutual funds, life insurance, annuities, municipal securities, safe deposit boxes, or U.S. Treasury bills.
[1] Federal Deposit Insurance Corporation. Understanding Deposit Insurance. Accessed August 28, 2023.
[2] Federal Deposit Insurance Corporation. Are My Deposits Accounts Insured by the FICD? Accessed August 28, 2023.
[3] Federal Deposit Insurance Corporation. Your Insured Deposits. Accessed August 29, 2023.
[4] Treasury Direct. Treasury Marketable Securities – The Basics. Accessed August 29, 2023.
