When putting money in a bank account, there’s an assumption that it will be there whenever you need it. This can be true if you put cash into an Federal Deposit Insurance Corporation commonly known as FDIC insured account. The FDIC has been around since 1933 and was created to prevent the financial crisis that took place during the Great Depression due to bank failures from happening again.
What is FDIC Insurance
FDIC insurance is a type of government-backed safety net for people who place their money in banks or savings associations. This type of insurance protects against any bank failures and theft. Not only does FDIC insurance cover money in banks-it also extends to cashier checks and money orders. What it doesn’t cover is investment products.
Not every bank is FDIC insured–only members of the Federal Deposit Insurance Corporation (FDIC) are. This is a deposit insurance agency backed by the federal government. To check if your bank is insured, scan BankFind, the FDIC’s online tool. Account owners can also check whether an account is fully insured, by using the Electronic Deposit Insurance Estimator tool.
Account holders who keep money in credit unions also have financial protection but not through the FDIC. Credit unions are regulated by the National Credit Union Administration (NCUA), which is an independent federal agency. The National Credit Union Share Insurance Fund, which is administered by NCUA protects funds placed in credit unions. The NCUA is the equivalent of the FDIC within this context.
How FDIC Works
FDIC insurance is automatic so account owners don’t have to take any extra steps to opt in. In the event a bank goes bust, you shouldn’t need to file a claim. Either the FDIC would issue you a check or your money would be transferred to a bank in good standing. In these scenarios, other banks often step in to buy the failed bank. The second option would be that you receive a check within a couple of business days.
The types of accounts the FDIC insures include:
- Checking accounts
- Savings accounts
- High Yield Savings accounts
- Money market deposit accounts
- Certificates of deposits (CDs)
- Negotiable order of withdrawal (NOW) accounts
- Cashier’s checks
- Money orders
- Deposits held within self-directed retirement accounts like IRAs and 401(k)s
- Deposit accounts held within revocable and irrevocable trusts
- Prepaid cards that meet FDIC requirements
- Other official items issued by an insured bank
As mentioned, investing products aren’t typically covered by FDIC. A comprehensive list of what isn’t covered includes:
- Stocks
- Bonds
- Mutual funds
- Life insurance policies
- Annuities
- Municipal securities
- Safe deposit boxes and assets inside
- U.S Treasury bills, bonds, or notes
- Crypto assets
How Much The FDIC Insures
The FDIC insurance covers up to $250,000 dollar for dollar, which is far more than an average American has sitting in their bank. The $250,000 limit is per account at each bank. So, in the instance an individual had three accounts at three different institutions, they would get a maximum of $250,000 back from each bank.
The FDIC coverage amount also includes principal and any interest accrued such as in a high-yield savings account, for instance.
What if you have more than $250,000 in your account? Then you file a claim with the bank for the balance and receive a Receiver’s Certificate as proof that you’re owed a certain amount. If the bank ends up liquidating their assets, you should be first in line to get your remaining funds, assuming they have enough to pay you.
To keep your funds safe and have as much peace of kid as possible, it is ideal to store your money in an FDIC-insured account. While banks don’t go bust every day, it is a possibility.
