You read about the Federal Deposit Insurance Corporation back in high school history class, and you probably hear the acronym quickly rattled off at the end of TV commercials, or see the sign in the window of your bank. But what exactly does the FDIC do for everyday consumers like you and me? Let’s run through five quick things every consumer should know about the FDIC.
Why does the FDIC exist?
The FDIC was formed by the Banking Act of 1933, which was signed into law by Franklin D. Roosevelt. This legislation was passed in response to the failure of not just one or two, but literally thousands of banks in the 1920s and early 1930s. FDIC insurance exists to guarantee the protection of the money in your accounts in the unlikely (but still possible) event that your bank fails.
What exactly does the FDIC cover?
The FDIC covers deposits at insured banks, and includes checking, savings accounts, money market deposits, CDs and more. Any institution that is covered by the FDIC is required by law to display a sign at their business stating that deposits here are insured.
FDIC insurance does have its limits; the standard amount covers $250,000 per depositor, per insured bank for each type of ownership category (these range from single accounts to retirement accounts to trust accounts).
Which deposits are not covered by the FDIC?
While the FDIC does cover deposits at insured banks, it does not cover deposits at every financial institution. The Federal Deposit Insurance Company does not insure the following:
- Credit unions (these are covered by the National Credit Union Administration)
- Investments in stocks, bonds, mutual funds, municipal bonds or securities
- Life insurance
- Safe deposit boxes
What happens when a bank fails?
“Bank failure” is the term used when a bank is closed by a federal or state banking regulatory agency because the bank cannot meet obligations to depositors. If a bank does fail, the FDIC’s first duty is to notify individual depositors of said failure. The FDIC is then responsible for reimbursing each depositor for his or her funds, up to the $250,000 insurance limit.
When it comes to the bank itself, the FDIC acts as the “receiver” of that failed bank and manages the task of selling its assets and settling its debts.
Who funds the FDIC?
The FDIC is funded by the premiums that banks pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities. Recently, the FDIC warned banking institutions not to list the FDIC’s name next to charges that are passed on to consumers – in other words, the agency wants to make it clear that bank itself, not the customer, is responsible for funding deposit insurance.
FDIC resources for consumers
Curious how much of your deposits are covered by the FDIC? Check out the Electronic Deposit Insurance Estimator, which lets you plug in your information to figure out exactly how insurance rules and limits apply each of your bank accounts.
For more information on the U.S. financial organizations and agencies that affect your money, see our financial organizations series.