What is FDIC insurance – and how does it work?

April 27th, 2011 Cindy Mays
What is the FDIC and how does it work?

Do you remember the scene in Mary Poppins where there is a run on the bank? Hundreds of anxious and nervous customers race to the bank in fear that they have lost all their money. People are scared. There’s lots of elbowing. The bank locks its doors. Panic ensues.

Thanks to the FDIC – or Federal Deposit Insurance Corporation – this type of scenario is something you probably won’t have to worry about.

The FDIC is the U.S. federal agency that protects you against the loss of your deposits if your FDIC-insured bank were to fail. The agency was created in 1933 by President Roosevelt to insure bank and thrift deposits after thousands suffered great losses in the aftermath of the stock market crash of 1929. (Credit union deposits are insured by the National Credit Union Administration.)

Is your bank insured?

Before you begin a new relationship with a bank, it’s always smart to first confirm that the bank is insured by the FDIC.

While the vast majority of banks these days are FDIC insured, it’s wise to double check before you begin depositing money. You can easily do this by checking the FDIC’s online database and searching for your institution with the agency’s Bank Find tool.

What does FDIC insurance cover?

For individuals, deposits are insured up to $250,000. (Please note, however, that IRAs are insured separately.)

Historically the limit was set at $100,000. However, it was raised in 2008, in an effort to calm fears in the wake of one of the largest bank failures of all time – Washington Mutual. Although this was supposed to be a temporary raise in coverage it has since been made permanent with the Dodd-Frank Wall Street Reform and Consumer Protection Act that was signed into law in July 2010.

Joint accounts are insured on a per-person basis up to $250,000. In other words, you and another account holder can have up to $500,000 in a checking account that would be fully insured by the FDIC.

The FDIC’s Electronic Deposit Insurance Estimator tool allows you to determine exactly how the insurance rules and limits apply to your specific group of deposit accounts.

What qualifies as “deposits”?

FDIC insurance applies to funds in deposit accounts you have at a covered bank up to the insurance limit. This includes:

  • Checking accounts
  • Savings accounts
  • CDs
  • Money market accounts

FDIC insurance does not cover:

  • Safety deposit boxes, including contents
  • Investments such as mutual funds or stocks
  • Insurance products such as annuities

For individuals, deposits are insured up to $250,000. (Please note, however, that IRAs are insured separately.)

Historically the limit was set at $100,000. However, it was raised in 2008, in an effort to calm fears in the wake of one of the largest bank failures of all time – Washington Mutual. Although this was supposed to be a temporary raise in coverage it has since been made permanent with the Dodd-Frank Wall Street Reform and Consumer Protection Act that was signed into law in July 2010.

Joint accounts are insured on a per-person basis up to $250,000. In other words, you and another account holder can have up to $500,000 in a checking account that would be fully insured by the FDIC.

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Cindy Mays

About the author

Cindy Mays is Market President at MidWestOne Bank. She works in the retail department, specializing in checking and savings accounts, auto loans and home equity loans.

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