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What is FDIC Insurance? – Coverage, Limits & Rules for Banks

By Joshua Caucutt

fdic emblem sealI remember noticing the letters “FDIC” stenciled on the bank door when I was a little kid. Everyone has seen the acronym at some point:  in television commercials, on web advertising or posted somewhere in the bank. The term became especially well known during the financial meltdown of 2008 when FDIC insurance became a major topic.

I never really paid attention to whether or not a bank was carrying FDIC insurance until I started researching banks offering high interest rates on online savings accounts (e.g. ING Direct and Ally Bank). Many banks offered rates in excess of 5% back in 2005 to 2007 . However, I needed to be sure that if I chose to put money in an online account,  it would still be safe.

FDIC membership is critical to monetary safety. Read on to learn more about the details and what you can do to safeguard your money.

What Is FDIC?

The Federal Deposit Insurance Corporation is an entity started in 1934 by the federal government to give consumers confidence in the banking industry during the Great Depression. Today, most types of consumer bank accounts are insured against loss for up to $250,000 per investor.

One of the FDIC’s claims to fame is that, since 1934, American investors have never lost a penny that was insured by the FDIC. It is important to note that the FDIC does not insure all types of investment accounts and only covers up to a maximum balance of $250,000. Investors who have a balance greater than $250,000 are advised to consult with a financial professional about other options.

Here are the basics when it comes to FDIC insurance.

1. Insured Accounts

The types of accounts that are backed by the “full faith and credit of the United States government” include:

  • Checking accounts
  • Savings accounts
  • Certificates of deposit (CDs)
  • Certain IRA retirement accounts (insured by the FDIC)
  • Money market deposit accounts
  • Outstanding cashier’s checks, interest checks, and other negotiable instruments
  • Accounts denominated in foreign currencies held in American banks
  • Foreign banks holding FDIC insurance

If you are unsure whether an account you are investing in is covered, check out the FDIC website or inquire at your financial institution. It may feel like a silly question, but you’ll feel better knowing the answer for sure.

2. Effects of Inflation and Crisis

Just like everything else, the limits for insured accounts have changed over time. The government has recognized when there was a need for an increase, whether it was due to the effects of inflation or financial crisis.

The increase from $100,000 to $250,000 was initially a temporary reaction to the bank meltdown in 2008. It was later made permanent by the Wall Street Reform and Consumer Protection Act of 2010. Looking at the dramatic change since this program was started can give you a true idea of how our society has changed financially in the last 77 years:

  • 1934 – $2,500
  • 1935 – $5,000
  • 1950 – $10,000
  • 1966 – $15,000
  • 1969 – $20,000
  • 1974 – $40,000
  • 1980 – $100,000
  • 2008 – $250,000

3. Credit Unions

All American banks are FDIC insured. If they did not have that insurance, they would not be allowed to provide banking products. But what about credit unions?

Since many people opt for the benefits of a credit union vs a bank, this is an excellent question. Credit unions are insured in an identical manner to FDIC insurance, except it is through the National Credit Union Share Insurance Fund (NCUSIF).

4. What Isn’t Covered?

Perhaps the more important thing to consider is the types of investment vehicles and issues that are not backed by FDIC insurance. Here are some of the more common ones:

  • Mutual Funds
  • Treasury Securities
  • Safe Deposit boxes
  • Annuities
  • Stocks and bonds
  • Robberies, embezzlement and physical damage to bank property

The last point in this list could be cause for worry, but FDIC insurance is not the only type of insurance that a bank will own. A good bank will carry insurance policies that cover just about anything that can happen, including robberies and embezzlement. The FDIC is primarily concerned with bank failure. If you possess a bit of a morbid sense of curiosity, you might be interested in looking at the list of failed banks posted on the FDIC website.

Final Word

FDIC insurance was initiated as a reaction to major financial downturn in our country. It was created to insure that you, as a financial consumer, are protected if the bank you choose should ever fail. Over time, coverage limits have increased to reflect changes in our society. So, dig up that coffee can in the back yard and bring the cash to the bank. Rest assured your money will be safe.

What are your thoughts on FDIC insurance? If you have something to add, please leave a comment below.

(photo credit: zieak)

Joshua Caucutt
Joshua Caucutt has a BS in Mathematics and a Master's degree in Nouthetic Counseling. He has published or written for several blogs and websites over the past decade. He is a long-term market follower, financial educator and especially interested in looking at money from a biblical point of view. Formerly known as "Stew" at Gather Little by Little, Josh writes under his own name at Money Crashers.

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  • http://insuranceproduts.com/ Stacy Coldman

    great info, write more! i have bookmarked, need some more

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