Banking

What Is FDIC Insurance and How Does It Work?

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Federal Deposit Insurance Corporation (FDIC) insurance protects your money if your FDIC-insured bank fails for any reason. Up to $250,000 per depositor, per bank and per ownership category is protected.

FDIC insurance covers deposit products like checking accounts, savings accounts, money market accounts and certificates of deposit (CDs). No one has to apply for FDIC insurance; it’s automatically applied to these accounts at FDIC-insured banks.

Key takeaways

  • FDIC insurance protects your money in the event of a bank failure
  • No depositor has lost insured money since the FDIC’s official start in 1933
  • The FDIC insurance limit is $250,000 per depositor, per bank and per ownership category
  • Check a bank’s FDIC status by visiting its website to confirm it’s “Member FDIC” or using the FDIC’s BankFind Suite tool

What is FDIC insurance?

In effect since 1934, FDIC insurance is government-backed insurance on deposit products like checking accounts, savings accounts, money market accounts and CDs.

The FDIC was President Franklin Roosevelt’s response to bank closures during the Great Depression. He aimed to re-establish trust in the American banking system by guaranteeing that if your money wasn’t available for liquidation at your bank, it would still be returned to you via the FDIC insurance fund.

Good news: it worked. FDIC insurance has effectively protected depositors’ savings, as no one has lost money from their deposits at FDIC-insured institutions since the agency’s inception.

Why should you use an FDIC-insured bank?

FDIC insurance protects your money in the rare event your bank fails. If you save your cash under your mattress or elsewhere, it could be lost or stolen. Keeping your funds with an FDIC-insured bank, however, means that you’ll always know where your money is and that it’s safe.

The history of the FDIC

1933: President Roosevelt signs the Banking Act of 1933, establishing the FDIC as a temporary government agency and allowing it to provide deposit insurance to banks.
1934: FDIC deposit insurance goes into temporary effect with a $2,500 coverage limit (increasing later that year to $5,000).
1935: The Banking Act of 1935 establishes the FDIC as a permanent government agency.
2010: After steady growth in the coverage limit over the years, the FDIC coverage level is permanently set at $250,000.
Present: Since the FDIC was officially established in 1933, no depositor has lost money from their insured deposits at Member FDIC institutions.

How does an FDIC-insured account work?

The FDIC insurance limit is $250,000 in deposits per depositor, per FDIC-insured bank and per ownership category. An ownership category refers to the way in which you hold your funds at a bank — whether it’s in a joint account, a single account, a trust account or another type of legal ownership.

According to the FDIC, the primary ownership categories are:

  • Single accounts
  • Joint accounts
  • Revocable trust accounts
  • Irrevocable trust accounts
  • Certain retirement accounts
  • Government accounts
  • Employee benefit plan accounts
  • Business accounts
Example: You have $200,000 in a high-yield online savings account and $200,000 in a money market account with the same FDIC-insured bank. Because the accounts are under only your name, they are both considered single accounts. You are only covered for $250,000 of the $400,000.

However, if you have deposit accounts at the same FDIC-insured bank in different ownership categories, those accounts will be insured for up to $250,000 each.

Example: You have $200,000 in a joint account with your spouse and $200,000 in a savings account, under only your name, at the same bank. All $400,000 of your funds are covered because these are two different ownership categories.

Similarly, if you have deposit accounts in the same ownership category but at different institutions, those would also be insured separately.

Two ownership categories worth calling out are joint accounts and revocable trusts. Joint accounts with two co-owners are FDIC-insured to $500,000, since each account holder is insured for up to $250,000 (assuming the co-owners hold no other joint account deposits at the same bank). Meanwhile, a deposit account associated with a revocable trust is insured for up to $250,000 per beneficiary for up to five beneficiaries. Many will use trusts as a way to spread their money across various accounts, thus maximizing their coverage.

What to expect if your bank fails

A bank fails when it is unable to meet the obligations of its account holders, so a regulatory agency orders it to close. When a bank fails, the FDIC does one of two things:

  • Moves the assets of the failed bank to a more prosperous or “healthy” institution. At that point, you become a depositor at the new bank and have access to your insured funds.
  • Pays you directly for your insured deposits.

The FDIC notifies you immediately after your bank closes; there is no action needed on your part. The FDIC aims to pay your funds back within a few days after the failure –– although every bank failure is different and may require more time.

Where does the FDIC get the money? The FDIC’s insurance fund is made up of already-paid premiums by insured banks and interest earned on U.S. Treasury securities.

What is covered with FDIC insurance?

Most banks, both online and brick-and-mortar, are covered by the FDIC. Specific to certain accounts, FDIC insurance covers traditional bank deposit accounts, including:

  • Checking accounts
  • Savings accounts
  • Money market accounts
  • Certificates of deposit (CDs)
  • Negotiable order of withdrawal (NOW) accounts
  • Some prepaid cards
  • Cashier’s checks and money orders

What isn’t covered with FDIC insurance?

The FDIC does not cover investment products, including:

  • U.S. Treasury securities
  • Mutual funds
  • Stocks
  • Bonds
  • Annuities
  • Life insurance policies
  • Government securities
  • Municipal securities
  • Safe-deposit boxes
  • Payment providers (e.g., Paypal and Venmo)
  • Cryptocurrency
  • Any other investment that is not a deposit

How do you know if your bank is FDIC-insured?

The FDIC insures most financial institutions — but there are exceptions, such as credit unions and brokerage firms. You’ll often see FDIC-insured banks call themselves “Member FDIC” in their fine print.

NCUA vs. FDIC

Instead of FDIC insurance, credit unions have National Credit Union Administration (NCUA) insurance. They are very similar and only differ by the institutions they insure. The FDIC insures banks, while the NCUA insures credit unions.

The NCUA insurance limit is $250,000 per account owner, per institution and per ownership category –– just like the FDIC limit.

SIPC vs. FDIC

While the FDIC protects deposit accounts in the event of a bank failure, the Securities Investment Protection Corporation (SIPC) is a nonprofit membership corporation that protects your investments (cash and securities) in the event of a brokerage firm failure.

Unlike the FDIC, the SIPC protects against cash and security loss at a limit of $500,000 (with a $250,000 limit for cash). This includes stocks, bonds, treasury securities, mutual funds and other investments. It’s important to note that the SIPC does not protect you against any decline in your investments’ value.

Check your bank’s FDIC status

You can confirm whether your bank is FDIC-insured by using the FDIC’s BankFind Suite tool. Or, check your specific deposit insurance coverage by using the FDIC’s Electronic Deposit Insurance Estimator (EDIE). Enter your account information into EDIE or visit the FDIC Information and Support Center to submit a request for more information.

Frequently asked questions

No, credit unions are not insured by the FDIC. However, they are insured by the National Credit Union Administration (NCUA).

Typical deposit accounts, even those online, are insured if they’re held with FDIC-insured banks, such as Chase Bank, Wells Fargo, Ally Bank and Bank of America.
No, cryptocurrency is not insured by the FDIC or the SIPC.
You can confirm whether your bank is FDIC-insured by using the FDIC’s BankFind Suite tool.

If an FDIC-insured bank fails, the FDIC steps in to either sell off the bank’s assets and bring depositors over to a new “healthier” bank, or the FDIC pays depositors back directly up to the insured limit.

Yes. Each co-owner on a joint account is insured up to $250,000 per bank, per ownership category (in this case, joint accounts) at each FDIC-insured bank. Therefore, a joint account at a FDIC-insured bank with two owners is insured up to $500,000.

No, not all banks are FDIC-insured. If your bank is FDIC-insured, it will say it’s “Member FDIC” on its website and in its fine print. Credit unions are not insured by the FDIC.

FDIC insurance insures deposit accounts at banks, while NCUA insurance insures deposit accounts at credit unions.
The FDIC is concerned with insuring various types of deposit accounts, while the SIPC covers clients of broker-dealers for investments.