What the FDIC Does and Does Not Insure
The FDIC insures many of the accounts involved in everyday banking -- but it doesn't insure everything. Here's a look at what is and isn't covered [source: FDIC].
The FDIC insures:
- Checking accounts
- Savings accounts
- Revocable and irrevocable trust accounts
- Money market deposit accounts
- Cashier's checks and money orders
- Certificates of Deposit (CDs)
- Negotiable Order of Withdrawal accounts (NOWs), a type of bank account that earns interest. The account holder can write checks from a NOW account.
The FDIC separates insured accounts into different ownership categories: single accounts, joint accounts, qualifying retirement accounts, revocable and irrevocable trusts and government accounts. To learn more, visit the FDIC Web page that describes ownership categories.
What do these categories mean to you? The FDIC insures up to $250,000 per owner per account category. If you have money in both a checking account and a retirement account at the same bank, the FDIC will insure both accounts up to $250,000 each, because they are two different categories. Likewise, if you and your spouse have $500,000 in a joint CD account, you are both insured up to $250,000 each, so that $500,000 is fully covered by FDIC deposit insurance.
Note that single and joint accounts are two different categories. It's possible for John Smith to have up to $250,000 in a single checking account and another $500,000 in a joint checking account he shares with his wife. Both accounts are fully covered by the FDIC. The trouble comes when two or more accounts fall into the same category, like a single checking account worth $200,000, a single CD worth $50,000 and a single savings account worth $100,000. Since all three accounts are single deposit accounts — and not retirement accounts or trusts — the owner is $100,000 over the $250,000 FDIC coverage limit.
To determine your exact FDIC coverage at an FDIC-insured bank, use this FDIC calculator.
The FDIC does NOT insure:
Even if you buy stocks, bonds or other securities through your bank, the FDIC does not cover them. Why not? First of all, they are not deposit accounts. Second, it would be impractical. Except for life insurance policies, these accounts' respective values are subject to fluctuations in economic, social and political circumstances, making them bad gambles for the FDIC. These types of accounts generally involve much larger amounts of money than the FDIC would be able to reliably and consistently cover. You might compare insuring such an account to insuring a Ferrari in a war zone.
The FDIC has undergone many changes over the years, but it has never failed to fulfill that mission. Since 1933, every depositor at every failed FDIC-insured bank has been reimbursed every last penny.
If you'd like to learn more about the Federal Deposit Insurance Corporation, you can follow the links below.
Author's Note: How the Federal Deposit Insurance Corporation Works
The FDIC is a wonderful example of effective government regulation. The FDIC was created to address a massive failure in the banking system and the loss of public trust in their financial institutions. It doesn't cost a dime of taxpayer money to operate and it has successfully insured every U.S. bank account holder since 1933. The regulatory powers of the FDIC were extended in the wake of the global financial crisis and Great Recession of 2007 through 2009. It remains to be seen whether new agencies like the Consumer Finance Protection Board and the Office of Complex Financial Institutions will be able to rein in the country's largest banks and safeguard the ordinary bank customer and homeowner against the volatility of the financial markets. Unless someone buys me a winning Powerball lottery ticket for Christmas, I am never going to have more than $250,000 in a single bank account. But it's comforting to know that my cash savings — as meager as they are — are at least fully insured.
- Consumer Finance Protection Board. "About Us" (July 2, 2013) http://www.consumerfinance.gov/the-bureau/
- Encyclopedia Britannica. "Federal Deposit Insurance Corporation (FDIC)" (April 3, 2008) http://www.britannica.com/eb/article-9033896/Federal-Deposit-Insurance-Corporation
- FDIC. "The 1930s." May 2, 2006 (April 3, 2008) http://www.fdic.gov/about/learn/learning/when/1930s.html FDIC. "The 1940s." May 2, 2006 (April 3, 2008) http://www.fdic.gov/about/learn/learning/when/1940s.html
- FDIC. "The 1950s." May 2, 2006 (April 3, 2008) http://www.fdic.gov/about/learn/learning/when/1950s.html
- FDIC. "The 1960s." May 2, 2006 (April 3, 2008)
- FDIC. "The 1970s." May 2, 2006 (April 3, 2008) http://www.fdic.gov/about/learn/learning/when/1970s.html
- FDIC. "The 1980s." May 2, 2006 (April 3, 2008) http://www.fdic.gov/about/learn/learning/when/1980s.html
- FDIC. "The 1990s." May 2, 2006 (April 3, 2008) http://www.fdic.gov/about/learn/learning/when/1990s.html (April 3, 2008)
- FDIC. "Basic FDIC Insurance Coverage Permanently Increased to $250,000 Per Depositor." July 21, 2010 (July 1, 2013) http://www.fdic.gov/news/news/press/2010/pr10161.html
- FDIC. "FDIC Announces Organizational Changes to Help Implement Recently Enacted Regulatory Reform by Congress." August 10, 2010 (July 2, 2013) http://www.fdic.gov/news/news/press/2010/pr10184.html
- FDIC. "FDIC Divisions." March 17, 2006 (April 3, 2008) http://www.fdic.gov/about/learn/learning/who/division.html
- FDIC. "History of the FDIC." December 12, 2006 (April 3, 2008) http://www.fdic.gov/about/history/index.html
- FDIC. "Insurance Coverage Basics." (July 2, 2013) http://www.fdic.gov/deposit/deposits/insured/basics.html
- FDIC. "Insuring Your Deposits." May 25, 2007 (April 3, 2008) http://www.fdic.gov/deposit/deposits/insuringdeposits/
- FDIC. "Who is the FDIC?" (July 1, 2013) http://www.fdic.gov/about/learn/symbol/
- FDIC. "Who Runs the FDIC?" May 25, 2007 (April 3, 2008) http://www.fdic.gov/about/learn/learning/who/runs.html
- FDIC. "Who Works for the FDIC?" March 17, 2006 (April 3, 2008) http://www.fdic.gov/about/learn/learning/who/index.html FDIC. "Why Was the FDIC Created?" (April 20, 2008) http://www.fdic.gov/about/learn/learning/why/index.html