Financial Fact: What is FDIC Insurance and Why is it Important?

With bank failures making news headlines recently, it’s not unusual to shift your attention to the safety of your personal bank account. We’ve all heard the term “FDIC insurance” bandied about recently, but what is FDIC insurance and how does it affect the average person? In this climate, knowing that your bank is insured by the Federal Deposit Insurance Corporation (FDIC) and understanding how the FDIC protects your money is more important than ever.

The FDIC is a U.S. government agency responsible for safeguarding consumers’ bank deposits in case of bank failure. The agency was created during the Depression as part of the New Deal to restore public confidence in the banking system. FDIC insurance covers deposits according to the ownership category in which the funds are insured and how the accounts are titled. The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. Ownership categories include individual, joint, living trust and payable-on-death accounts, and IRAs, among others.¹

On the individual level, FDIC insurance provides a safety net for American savers by ensuring that their deposits are secure. For instance:

If you have a savings account with a balance of $100,000, and your FDIC-insured bank fails, the FDIC will reimburse you for your entire deposit.
If you have $500,000 in a single-owner savings account at that bank, FDIC insurance will only reimburse you for the FDIC limit of $250,000 per account owner per bank.
If you have $1 million deposited in $250,000 portions at four different FDIC-insured banks, all $1 million would be FDIC-insured.

All examples above are for illustrative purposes only.

On a larger scale, FDIC insurance promotes financial stability by reducing the likelihood of bank runs. A bank run occurs when depositors panic and withdraw their funds from a bank en masse, leading to insolvency. By reassuring consumers that their funds are secure even if a bank fails, FDIC insurance decreases the prospect of bank runs.

Remember that not all banks are FDIC-insured, so it pays to check your bank’s credentials. To find out if your bank is protected by the FDIC, ask a bank representative, look for the FDIC sign at your bank, or call the FDIC at 877-275-3342.²

The Nitty Gritty

Not all types of bank accounts are covered by FDIC insurance. See the table below for what the FDIC does and does not protect.²

The FDIC Insures:	The FDIC DOES NOT Insure:
Checking accounts	Stocks
Negotiable Order of Withdrawal (NOW) accounts	Bonds
Savings accounts	Mutual funds
Money Market Deposit Accounts (MMDAs)	Life insurance policies
Certificates of Deposit (CDs)	Annuities
Cashier’s checks	Municipal securities
Money orders	Safe deposit boxes or their contents
	U.S. Treasury bills, bonds, or notes
	Crypto assets

Since there are nuances to what the FDIC insures, it’s a good idea to check with your financial planner about whether your bank accounts are protected by the FDIC. Also, if your bank or banks are not FDIC-insured, a planner can guide you in finding an insured financial institution. Either way, you’ll have information that will help give you peace of mind about your money.