What Is the FDIC and How Does It Protect Me?

In these challenging times, people are paying more attention to how things work. If there’s an invisible list of hot topics hanging just above our heads, I can almost guarantee that insurance and money are near the top. These subjects are linked to our need for provision and security, especially in this era of financial uncertainty fueled by the coronavirus pandemic.

As money and insurance intersect, you’ll find the Federal Deposit Insurance Corporation (FDIC) at the crossroads. It has served as a stamp of approval for banks for more than 85 years and a symbol of confidence for bank account holders.

In this post, I’ll discuss what the FDIC does, who it serves and protects, how banks become members, and what you can do if your bank goes out of business.

FDIC History Facts in Brief

• More than 9,000 U.S. banks failed between 1929 and 1933
• The FDIC was established by the U.S. Congress in 1933, but not implemented until January 1, 1934
• Only nine banks failed in 1934
• The FDIC is a result of public outcry for deposit insurance
• President Franklin D. Roosevelt initially opposed the FDIC formation
• Initial coverage was $2,500 for each depositor
• To date, standard coverage per depositor is up to $250,000
• To date, no depositor has lost insured money from an FDIC-insured bank

What Is the FDIC?

The FDIC is an independent government agency created to protect consumers against financial loss of FDIC-insured funds. Though established by the U.S. Congress, the FDIC does not receive Congressional funding. Instead, funding comes from deposit insurance premiums paid by banks and thrift associations such as savings and loan entities and credit union lenders.

The FDIC is also funded from dividends generated by U.S. Treasury securities investments. The United States government backs all FDIC-insured financial institutions. Should an FDIC-insured bank fail, all depositors are covered up to a standard amount of $250,000.

Aside from insuring deposits, the FDIC oversees banks to ensure sound practices and operations. It also ensures bank compliance with consumer and community protection laws.

Types of Accounts Insured by the FDIC

The FDIC only insures deposits. Here are examples of FDIC-insured accounts:

• Checking accounts
• Savings accounts
• Negotiable order of withdrawal (NOW) accounts
• Money market deposit accounts (MMDA)
• Certificate of deposit (CD) accounts
• Certain retirement accounts
• Irrevocable or revocable trust account
• Employee benefit plan account
• Corporation, partnership, or unincorporated association account
• Government account

All deposit accounts are covered by the FDIC, including any interest earned on the deposit. Investment accounts are a different story. Even if issued by an FDIC-insured bank, investment accounts are not subject to deposit insurance. Examples of investments include:

• Stocks
• Bonds
• Mutual funds
• Annuities
• Government securities
• Municipal securities
• U.S. Treasury securities

Additionally, neither money stolen as a result of a robbery or theft nor the contents of safety deposit boxes are covered by the FDIC. Speak with your financial institution to determine contingencies they have in place to combat these types of losses.

FDIC Coverage Amounts

Coverage amounts are based on account ownership and account type. While the standard coverage is up to $250,000 per bank and ownership category, there may be exceptions based on your unique circumstances. You can use the FDIC Electronic Deposit Insurance Estimator (EDIE) to get an estimated coverage amount for checking, savings, money market, and CD accounts. For other deposit accounts that exceed $250,000, you might have to provide additional documentation for the FDIC to complete a determination of additional coverage.

Here’s a more detailed breakdown of coverage amounts for qualified deposit accounts at the same bank.

Single Ownership Account (Up to $250,000 per Owner)

This is a deposit account owned by one person or established by a legal agent or guardian for one person. It can also be a business account owned by a sole proprietor or an account that holds a deceased individual’s funds. A single owner is covered up to $250,000.

Joint Ownership Account (Up to $250,000 per Co-Owner)

This is a deposit account owned by one or more people without named beneficiaries. If a person has multiple joint accounts at the same bank, the coverage amount still caps at $250,000.

Certain Retirement Accounts (Up to $250,000 per Owner at the Same Bank)

These accounts include Individual Retirement Accounts (IRAs) and self-directed plans such as 401k, profit sharing plans, or Keogh plans. This category also includes Section 457 deferred compensation plans. Each account owner is insured up to $250,000.

Revocable Trust Account (up to $250,000 per Each Unique Beneficiary)

Single or jointly owned, this account will identify specific beneficiaries such as people or non-profit organizations. These beneficiaries are paid upon the death of the trust owner(s), and their funds will be insured up to $250,000 per named beneficiary.

Irrevocable Trust Account (Up to $250,000 for All Contingent Interest Beneficiaries)

This trust account can have one or more grantors (owners) that fund the account. While this account can name several beneficiaries, the maximum coverage is $250,000 for contingent interests. A contingent interest is simply an action taken once a condition is met, such as reaching a certain age. On the other hand, if an irrevocable trust also contains noncontingent interests, those assets may also be added together and insured up to $250,000 on top of contingent interests.

Employee Benefit Plan Account (Up to $250,000 per Covered Participant)

These accounts are owned by employers and include pensions and other employee benefit plans that are not self-directed. Each plan participant (employee) has a noncontingent interest insured up to $250,000 per bank. If the plan has contingent interests, coverage is maxed out at $250,000 for the plan itself.

Corporation, Partnership, or Unincorporated Association Account (Up to $250,000 for All Deposits)

These deposit accounts can be owned by corporations, partnerships, unincorporated partnerships, and for-profit or nonprofit organizations. All deposits owned by each type of entity are added up and insured up to $250,000. Any personal accounts of the business or organization owners are considered separate and subject to their own insured limits.

Government Account (Up to $250,000 per Official Custodian)

These are accounts owned by the United States government, federal agencies, states, territories, counties, municipalities, the District of Columbia, or Native American tribes. These accounts often fund public entities such as school systems; will have an official, named custodian; and are insured up to $250,000 or more in some cases depending on the deposit type.

What’s the Difference Between Member FDIC and FDIC-Insured?

There is no difference — they both mean the same thing. An FDIC-insured financial institution has the option of calling itself an FDIC member or stating that it is insured by the FDIC.

How to Know if Your Bank Is a Member

You can use FDIC BankFind, a tool that provides detailed information about U.S. financial institutions or call 1-877-275-3342 (1-877-ASK-FDIC).

What Happens if My Bank Fails?

If an FDIC-insured bank fails, you can expect the FDIC to cover your funds up to the insurance limit. The FDIC will either open an account on your behalf with the insured amount at a different FDIC-insured bank or issue you a check for the covered amount.

How to File a Complaint

If you have any issues with your FDIC-insured bank, you can submit a request in writing to prompt a full investigation and review. It’s not enough to make a phone call — you must present written documentation. You can send the information by mail or use the FDIC Information and Support Center Portal. For the most up-to-date mailing address, call 1-877-ASK-FDIC.

Final Thoughts on the FDIC

Depending on how much money you have in your deposit accounts and what types of accounts you own, you might want to consider spreading your money across accounts at different FDIC-insured banks to ensure you’ll have the proper coverage you need. The FDIC has helpful tools to give you peace of mind about whether your bank is a member, but you should also take the time to find out what other coverages your bank has in place to protect your assets.