What is FDIC insurance and how does it work?

When you deposit money in a bank, you are essentially trusting that the bank will be able to return it to you (with interest in some cases) when you are ready to withdraw it. But like any other entity, banks can go through difficult times. According to Federal Deposit Insurance CorporationThis year, two banks went bankrupt, and five in 2023.

So how can you be sure that your money is safe in your bank? The FDIC helps with this.

You may have noticed that bank advertisements typically include the phrase “FDIC insured” or “member of the FDIC.” This means that federal deposit insurance will protect your money in the event of a bank failure. Here’s how it works and what it does (and doesn’t do).

What is FDIC Insurance?

The FDIC is an independent US government agency with three specific functions:

1. Providing insurance for bank deposits in the amount of at least $250,000 per depositor.
2. Supervision of member financial institutions
3. Management of the resolution of bankrupt banks

What FDIC Insurance Covers

FDIC insurance covers deposit accounts such as examination And savings accounts, CDsAnd money market accounts.

What FDIC Insurance Doesn’t Cover

FDIC insurance is insurance for deposit accounts. Other financial accounts, such as investment accounts, are not insurable. FDIC insurance also does not cover money or property stored in safe deposit boxes.

The type of account your money is in isn’t the only limitation of FDIC insurance. Insurance applies only in the event of bank bankruptcy. So, if your loss in your deposit account is due to something else—such as theft or fraud—the FDIC will not be responsible for covering it.

Coverage Limitations

The FDIC insurance limit at most banks is $250,000 per depositor, per bank, per depositor. property category. Ownership categories include separate accounts, joint accounts, and trust accounts.

Some banks offer deposit insurance programs that exceed the $250,000 limit. With these programs, financial institutions divide your deposited funds into several smaller amounts among several FDIC-insured banks. Each individual account can be insured up to $250,000, increasing your total coverage limit based on the number of accounts your funds move across.

You can also do this yourself by limiting your deposits at any FDIC-insured bank to $250,000 per bank. For example, if you have $750,000 deposited, you could split your funds evenly among three separate FDIC-insured banks, putting $250,000 into each bank to ensure all of your money is covered.

How FDIC Insurance Works

To obtain FDIC insurance coverage for your funds, all you need to do is open a deposit account at an FDIC-insured bank. You can use FDIC’s BankFind Tool to determine if your bank offers FDIC insurance.

If your bank goes bankruptThe FDIC usually does one of two things:

• Open a new account: The FDIC may transfer your money to a new account at another FDIC-insured bank. For example, if you have $100,000 deposited at Bank A and that bank fails, the FDIC can open a new account for you at Bank B and fund it with the $100,000 you lost when Bank A closed.
• Issue you a check: The Federal Deposit Insurance Corporation (FDIC) may issue you a check to cover your insurance premium. You can then transfer the funds to another financial institution if you wish.

The FDIC typically provides refunds within a few days of a bank failure. However, in some cases there may be delays. For example, if the FDIC chooses to issue checks rather than open new bank accounts for covered individuals, it may take additional time to receive your funds. If you have more than $250,000 in deposits, it may take some time for the FDIC to review your assets and determine how much of your losses are covered.

What about credit unions?

What to do if your money is in credit union instead of a bank? This is where the National Credit Union Administration comes in. The NCUA offers deposit insurance similar to FDIC insurance.

Like the FDIC, the NCUA offers coverage up to $250,000 per depositor, per credit union, per depositor. property category. This coverage is limited to losses on deposit accounts resulting from a credit union failure. You can find out if a credit union is NCUA insured by using Find a NCUA Credit Union.

Bottom line

FDIC insurance is a type of deposit insurance that can protect you if your federally insured bank fails. If you bank at a federally insured credit union, your deposits are covered by the NCUA. In any case, the money you deposit is covered by the full faith and power of the US government.

It is important to keep in mind that both of these types of insurance have coverage limits of $250,000 per depositor, per financial institution, and per property category. So if you have more than $250,000 in deposits, consider spreading your funds among multiple federally insured financial institutions to protect all your money from potential bank and credit union failures.

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