What Does It Mean When a Bank Is FDIC Insured?

When a bank is FDIC insured, it means your money is protected by the U.S. government if the institution fails. This insurance system promotes stability and public confidence in the nation’s financial system. The Federal Deposit Insurance Corporation (FDIC) was established during the Great Depression to safeguard depositors’ funds and prevent bank runs.

Defining FDIC Insurance

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government, created by the Banking Act of 1933. Its mission is to maintain stability and public confidence in the financial system by insuring deposits and supervising financial institutions for safety and soundness. The FDIC does not receive congressional appropriations; instead, it is funded by premiums paid by insured banks and interest earned on investments in U.S. government obligations.

Banks become FDIC-insured by applying for coverage and paying these premiums. Consumers can verify if their bank is FDIC-insured by looking for the “Member FDIC” sign displayed in bank lobbies or on their websites. The FDIC also provides an online tool called BankFind, which allows users to search for information about any FDIC-insured institution.

Covered Deposits and Exclusions

FDIC insurance covers various types of deposit accounts held at insured banks. These include checking accounts, savings accounts, money market deposit accounts (MMDAs), and Certificates of Deposit (CDs). Cashier’s checks and money orders issued by a bank are also protected. This coverage is automatic for any deposit account opened at an FDIC-insured institution.

However, FDIC insurance does not extend to all financial products, even if offered by an insured bank. Non-deposit investment products, such as stocks, bonds, mutual funds, annuities, and life insurance policies, are not covered. Cryptocurrencies are not insured by the FDIC. The contents of safe deposit boxes are also not protected by FDIC insurance, as this coverage is specifically for deposits. FDIC insurance protects against the failure of a bank, not against market losses or theft.

Maximizing Your Coverage

The maximum deposit insurance amount is $250,000 per depositor, per FDIC-insured bank, for each ownership category. This means all funds a single person holds across different deposit accounts (like checking, savings, and CDs) at the same bank, under the same ownership category, are added together and insured up to this limit. For example, if an individual has a $100,000 checking account and a $150,000 savings account, both in their name, the combined $250,000 would be fully insured.

Depositors can qualify for more than $250,000 in coverage at a single insured bank by holding funds in different ownership categories. Common ownership categories include single accounts, joint accounts, certain retirement accounts (such as IRAs and self-directed 401(k)s), and trust accounts. For instance, a joint account owned by two individuals can be insured up to $500,000, as each co-owner’s share is separately insured up to $250,000. Funds in different retirement accounts or trust accounts with multiple beneficiaries can also receive separate coverage.

How FDIC Insurance Protects Depositors

In the event of an FDIC-insured bank failure, the FDIC acts to resolve the situation, ensuring depositors have access to their insured funds. The FDIC addresses a bank failure in one of two ways: by finding another healthy bank to acquire the failed bank’s deposits, or by directly paying insured depositors. When another bank assumes the deposits, customer accounts are transferred to the acquiring institution, often with no interruption in service.

If a direct payoff is necessary, the FDIC issues checks to insured depositors for the amount of their insured funds. Access to these funds occurs quickly, within a few business days of the bank’s closing. The FDIC’s Deposit Insurance Fund, financed by premiums from member banks, is used for these payouts, and historically, no depositor has lost an insured penny due to a bank failure since the FDIC’s inception.