Understanding FDIC insurance

FDIC insurance

Understanding FDIC insurance

Understanding FDIC insurance

Historically, banks have been safe and stable places to store your money. But we’ve been around the block enough times to know these institutions aren’t too big to fail. So, what happens in the event that the bank where you keep your savings account goes under and can no longer meet their obligation to provide you with your money? That’s where FDIC insurance kicks in.

The Federal Deposit Insurance Corporation (FDIC) is an independent agency that protects the funds we place in banks and savings associations. FDIC insurance is backed by the full faith and credit of the United States government. And since the FDIC was established in 1933, no depositor has lost a penny of FDIC-insured funds.

FDIC insurance covers all deposit accounts, including checking & savings accounts, money market accounts, and CDs (certificates of deposit). It does not cover stocks, bonds, mutual funds, annuities, and other financial products that banks may offer. Yes, it protects both principal and interest through the date of the insured bank’s closing, up to the insurance limit. So, what are those limits? Well, the standard insurance amount is $250,000 per depositor, per bank, for each account ownership category. In other words, funds in joint accounts are insured separately from single accounts and other ownership categories. So, it’s possible to have deposits of more than $250k at one bank and still be fully insured. Take a joint account, for example, the co-owners are each entitled to the limit, so they could have up to $500k saved in a money market account and be fully insured.

I was curious how the FDIC funds their payouts of a failed bank, so I checked out their website: FDIC.gov. It turns out the FDIC’s deposit insurance fund consists of premiums already paid by insured banks and interest earnings on its investment portfolio of U.S. Treasury securities. No federal or state tax revenues are involved.

Speaking of that unlikely event that a bank fails, here’s happens if that occurs. The FDIC pays your money back within a few days after a bank closing, typically the next business day. They either transfer your money to a new account at a different insured bank or issue a check for the insured balance.

Now that I’ve sold you on the importance of this insurance, let’s talk about how you get it. Coverage is automatically applied when you open a deposit account at an FDIC-insured bank. So simply confirm that you are placing your funds in a deposit account at a covered bank and do not exceed the insurance limit for that ownership category. And remember to leave room for interest so your account does not exceed the limit once interest payments are made!

Lastly, credit unions are not insured by the FDIC, but they have very comparable insurance through NCUSIF (National Credit Union Insurance Fund).


MainStreet Team
MainStreet Team

MainStreet Financial Planning, Inc., an independent fee-only financial planning firm was founded in Maryland in 2002 by Jim Ludwick, CFP® who passionately believed that financial planning advice should be accessible to people from all walks of life without product sales and investment management services. In 2006 Anna Sergunina, CFP® joined the team and together they grew MainStreet Financial to a nationally recognized company, with a team of 6 staff members and 5 offices across the country.

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