Federal Deposit Insurance Corporation (FDIC)

What is the FDIC?

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government that provides deposit insurance to protect depositors in case their bank fails. FDIC insurance guarantees that the depositor will receive their insured funds up to a certain limit in case of a bank failure. The FDIC preserves and promotes public confidence in the U.S. financial system by:

  • insuring deposits in banks (keeping the money you have in the banks safe);
  • managing the deposit insurance funds;
  • and limiting the effect on the economy and the financial system when a bank fails.

History of the FDIC

The Federal Deposit Insurance Corporation (FDIC) was established in 1933 in response to the widespread bank failures that occurred during the Great Depression. Before the FDIC, there was no federal insurance for bank deposits, which meant that depositors lost their savings when a bank failed.

In order to restore confidence in the banking system and prevent future bank runs, the U.S. government created the FDIC as part of the Banking Act of 1933. The FDIC is an independent federal government agency funded through premiums paid by insured banks.

The purpose of the FDIC is to protect depositors by insuring their deposits in case their bank fails. The original insurance limit was $2,500 per depositor, but it has increased over the years to the current $250,000 per depositor per insured bank.

Since its creation, the FDIC has played an important role in maintaining stability in the banking system and protecting depositors’ savings. In addition to providing deposit insurance, the FDIC also regulates and supervises banks, conducts bank examinations, and takes action to prevent bank failures.

Over the years, the FDIC has responded to numerous bank failures, including the savings and loan crisis in the 1980s and the financial crisis of 2008.

How the FDIC works

FDIC insurance covers all deposit accounts, including checking accounts, savings accounts, money market accounts, and certificates of deposit (CDs). FDIC insurance covers both the principal and any accrued interest up to the insured limit.

Premiums paid by member banks fund FDIC insurance. Banks that are members of the FDIC are required to display the FDIC logo in their branches and on their websites to indicate that their deposits are insured.

The FDIC insurance limit is $250,000 per depositor per insured bank. This means that if you have more than $250,000 in a single bank, the FDIC does not insure the excess funds. For example, if you have $500,000 in a savings account in a single bank, only $250,000 is insured, and the remaining $250,000 is not insured.

If you have more than $250,000 in a single bank, you can ensure your funds are above the FDIC limit in several ways. These include:

  1. Opening multiple accounts: You can open multiple accounts at the same bank and make sure that each account is titled differently. For example, you can open a joint account with your spouse, an individual account in your name, and a trust account in the name of your family trust. Each account will be insured up to the FDIC limit of $250,000, giving you a total of $750,000 in insured funds.
  2. Spreading your deposits across multiple banks: You can spread your deposits across multiple banks to ensure that each deposit is insured up to the FDIC limit. For example, you can have $250,000 in a checking account at Bank A, $250,000 in a savings account at Bank B, and $250,000 in a CD at Bank C. Each deposit will be insured up to the FDIC limit, giving you a total of $750,000 in insured funds.
  3. Investing in FDIC-insured products: You can invest in FDIC-insured products such as CDs, savings bonds, and money market accounts. These products are insured up to the FDIC limit, and the interest rates may be higher than those traditional savings accounts offer.
  4. Using a CDARS program: CDARS stands for Certificate of Deposit Account Registry Service. CDARS is a program that allows you to deposit funds in multiple banks while working with only one bank. The bank acts as a custodian and divides your funds into CDs that are insured by the FDIC up to the limit. CDARS allows you to insure deposits of up to $50 million.

It is important to understand that the FDIC insurance limit may change over time. The limit was increased from $100,000 to $250,000 in 2008, and there is no guarantee that it will not change again in the future. Therefore, it is important to stay informed about any changes in the FDIC insurance limit and adjust your deposits accordingly.

How Much Are Your Deposits Insured

It is important to note that the FDIC limit applies to each depositor at each insured bank. If you have a joint account with your spouse, the account is insured up to $500,000 ($250,000 per depositor). If you have a trust account with three trustees, the account is insured up to $750,000 ($250,000 per trustee).

In addition, the FDIC limit applies to the total deposits in each ownership category. Ownership categories include individual accounts, joint accounts, trust accounts, retirement accounts, and business accounts. If you have multiple accounts in the same ownership category at the same bank, the deposits in those accounts are added together and insured up to the FDIC limit.

Here are two things to keep:

  • Keep track of your deposits and their ownership categories. If you have multiple accounts in different ownership categories at the same bank, you may be able to insure more than $250,000 in insured funds at that bank. For example, if you have an individual account with $250,000, a joint account with your spouse with $250,000, and a trust account with $250,000, all at the same bank, each account is insured up to $250,000, giving you a total of $750,000 in insured funds.
  • Keep in mind that FDIC insurance only covers deposits. It does not cover investments in stocks, bonds, mutual funds, or annuities. Therefore, if you have investments in addition to deposits, you may want to consider other types of insurance, such as Securities Investor Protection Corporation (SIPC) coverage.

FDIC insurance is an important protection for depositors in case their bank fails. The current FDIC insurance limit is $250,000 per depositor per insured bank. If you have more than $250,000 in a single bank, there are several ways to ensure your funds are above the limit, including opening multiple accounts, spreading your deposits across multiple banks, investing in FDIC-insured products, and using a CDARS program. It is important to keep track of your deposits and their ownership categories to ensure that your funds are fully insured. Finally, it is important to stay informed about any changes in the FDIC insurance limit and adjust your deposits accordingly.

Here are some relevant and helpful links for further information about FDIC and FDIC insurance:

  1. Federal Deposit Insurance Corporation (FDIC) website: The official website of the FDIC provides information about deposit insurance, bank supervision, consumer protection, and more.
  2. Electronic Deposit Insurance Estimator (EDIE): This tool on the FDIC website allows you to calculate the insurance coverage of your deposits at a particular bank.

By using these resources, you can better understand FDIC insurance and how to protect your deposits in case of a bank failure.