What Is the FDIC?

Sarah Tecla, Preferred Banking Office Assistant Manager, First Republic Bank
August 9, 2022

  • The initialism “FDIC” stands for the Federal Deposit Insurance Corporation, which is an independent federal agency that offers insurance coverage for depositors.
  • The FDIC was established as a type of consumer protection to help safeguard depositors’ money in case of bank failure.
  • FDIC insurance generally covers balances up to $250,000 per depositor, per FDIC-insured bank, per ownership category, though there are exceptions for what kinds of financial accounts and items are included in this coverage.

What is the FDIC, and what does FDIC stand for? This initialism refers to the Federal Deposit Insurance Corporation, which is an agency that offers insurance coverage for deposit accounts at thousands of member banks. Understanding why you see “FDIC,” what it means and how it works can help you bank intelligently across financial institutions and ultimately safeguard your wealth.

What is the FDIC, and what does it do?

The FDIC is an independent agency, established by the U.S. government, that provides insurance coverage for funds stored within bank deposit accounts at member banks (these are called “depository institutions”).

The FDIC was created through federal law during the Great Depression, following the stock market crash of October 1929. The federal agency was formed by Congress through the Emergency Banking Act of 1933 with the purpose of providing economic stability during bank failure across the country. With its aim of consumer protection, the FDIC was meant to boost public confidence for depositors during a turbulent economy.

What does the FDIC do now?

In its current iteration, it insures a variety of accounts at thousands of financial institutions nationwide, typically up to $250,000 per depositor, per FDIC-insured bank, per ownership category, to protect banking customers in the event of bank failure. 

This $250,000 insurance limit applies per applicable limits: in other words, one customer can have up to $250,000 covered in several different accounts vesting at one bank, as well as up to $250,000 in those same accounts vesting at a different bank.

What types of accounts does the FDIC insure?

FDIC protection is wide-ranging. The FDIC insures a variety of commonly used deposit accounts. These include:

This protection also extends to bank-issued cashier’s checks, money orders and other official items.

There are some exceptions to what the FDIC insures, however. This insurance coverage does not include:

  • Annuities
  • Mutual funds
  • Municipal securities
  • Life insurance policies
  • Stock or bond investments

Additionally, the contents of safe deposit boxes, as well as U.S. Treasury bills, bonds or notes, are not covered.

How does FDIC insurance coverage work?

Importantly, FDIC insurance applies only if a bank fails, which is a fairly rare event in the United States when the economy is stable. That said, it does happen occasionally and during turbulent times, which is why FDIC coverage is so important for consumer protection.

What does the FDIC do in this situation?

Here are the steps the FDIC takes if an insured bank does fail:

  1. If possible, the FDIC seeks a stable bank to assume the deposit accounts of the failed bank, where depositors at the former bank then will be able to access their funds as usual, for the same amount that was in the account at the failed financial institution.
  2. If the FDIC can’t find a bank to assume the failed bank’s deposit accounts, the FDIC itself will quickly send checks to account holders to cover the value of the insured funds within their accounts, typically starting within two business days.

Depending on the nature of your accounts, particularly those that exceed $250,000, the FDIC may need additional time for processing or request supplemental information from the depositor.

What if you have more than the insured amount in an account?

Along with understanding how the FDIC works, it’s important to understand what happens if you have more money in your account than the insurance coverage threshold (generally $250,000).

If a depositor has a higher balance than what’s covered by insurance in an FDIC-insured account, per the FDIC, account holders “receive a claim against the estate of the closed bank” for the remaining amount.

Bank strategically with the FDIC

The FDIC is an important part of the banking system, as it provides vital consumer protection and can keep consumer confidence high. This independent federal agency provides a safeguard for deposit account holders across the country and at thousands of financial institutions.

To take advantage of this coverage, and protect your finances, it’s important to choose bank accounts wisely. This can help you make the most of your money, as well as secure your assets — and, ultimately, your financial health — for the future. A first step may be looking into the different types of savings accounts, which can be wise places for you to store and grow your wealth, since many are interest-bearing. Financial professionals can also provide guidance to make sure you are taking a strategic approach to protecting your money.

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