What is the FDIC?

We’ve all seen these four letters on our visits to the bank or on our banking website, but do we know what they mean? Sure, we know they’re important letters, but do we even know what they stand for? 

If you’re stumped and asking yourself, “What is the FDIC?” you’re not alone. That’s why today, we’re taking a deeper look at the purpose of FDIC, how it works, and what it means for you. 

How does the FDIC work?

The Federal Deposit Insurance Corporation, or FDIC, was created by Congress with the goal of being an independent agency that maintains stability and public confidence in our nation’s financial system. The FDIC reaches this goal in many ways, like by insuring deposits, examining processes, supervising financial institutions, managing receiverships, and making large, complex financial institutions resolvable. 

In 1933, the FDIC was created in response to the numerous bank failures across the country in the 1920s and 1930s. They are funded by premiums from banks and savings associations that pay for deposit insurance coverage. Trillions of dollars of U.S. bank and thrift deposits are insured by the FDIC. 

What does the FDIC cover?

As long as your bank or financial institution shows Member FDIC, you can trust that your deposits are insured. That includes checking accounts, savings accounts, certificates of deposit (CDs), and money market accounts.

What’s not covered?

Seeing Member FDIC  doesn’t mean that all the money you keep in the bank is protected. The items not insured are the contents of safety deposit boxes, stock, bond, or treasury security investments, investments in exchange-traded funds (ETFs), investments in money market mutual funds, and insurance products like annuities. Because these items aren’t considered deposits, they are not FDIC protected.

How does FDIC protect your money?

Now that we know more about the agency, let’s take a closer look at the FDIC definition of protection and how it keeps your money safe.

Ensuring against bank failure

If your bank should shut down and close, your money will be insured up to the insurance limit. The FDIC typically makes the payment within one business day by giving each depositor a new account at another insured bank or issuing a check to each depositor for the insured balance of their account. 

The FDIC is also tasked with the responsibility of selling and collecting the failed bank’s assets. That includes claims for deposits that exceed the insured limit. Although it may take several years, a portion of this uninsured money may be claimed once the assets are sold. 

Periodic payments may be sent to those with uninsured funds as assets are sold. This is why those words, Member FDIC, are so important.

Protecting your investments

After you make a cash deposit into your bank account, your money might not just sit there until you make a purchase or withdraw the money. Instead, the bank can invest the funds to support the institution’s business-related activities.

That means the bank can use your money to offer loans, and the interest earned on the loan is then paid to you. They make other investments with the money deposited by account holders in an effort to make money to sustain their institution. But what happens if the bank doesn’t see a return on their investments and the loans aren’t repaid? 

Well, that can cause the bank to fail and that’s where the FDIC comes into play. If too much money has been lost, the consumer is still protected and the FDIC will cover the loss. 

FDIC insurance limits

It would only be natural to ask, “What is the FDIC limit for each account it protects?” You’ve come to the right place, and the chart below will provide you with the information you’re looking for. 

Per depositor, per institution

The depositor is you and the institution is the insured bank. This means that every account that you open at a different bank will be covered up to the insured limit. Having deposits in the same bank but at different branches counts as one deposit at a single institution. 

Per ownership category

This refers to the person or persons who own the account. You can have a single account, meaning it’s owned by one person, or a joint account owned by two or more people. Retirement accounts, like IRAs, employee benefit plan accounts, and trust accounts, all are considered other ownership categories.

If you have multiple accounts under different ownership categories you may qualify for more than the coverage limit. If two or more people are on the account, it will be insured for up to $250,000 per person, totaling $500,000.

Account Type	Limit
Single accounts owned by one person	$250,000 per owner
Joint accounts owned by more than one person	$250,000 per co-owner
Certain retirement accounts, including IRAs	$250,000 per owner
Revocable trust accounts	$250,000 per depositor per unique beneficiary
Irrevocable trust accounts	$250,000 per unique beneficiary entitled to the account
Corporation, partnership, and unincorporated association accounts	$250,000 per corporation, partnership or unincorporated association
Employee benefit plan accounts	$250,000 per plan participant entitled to the account
Government accounts	$250,000 per official custodian

How do I file a claim with the FDIC?

Filing a complaint or claim against an insured financial institution first requires finding out which government agency oversees the particular bank. Call 1-877-ASK-FDIC (1-877-275-3342) to determine the correct agency. You can also contact the agency via the FDIC website. They take claims seriously, so don’t hesitate to let them know if you think something is wrong.

FDIC: four letters you want to see 

If you’re opening any type of deposit account, it’s important for the future of your financial health that Member FDIC is prominently displayed in the bank that you chose. If you don’t see these letters, you may end up losing the savings you’ve worked so hard to accumulate. It’s better to be safe than sorry, and knowing there is an independent agency that will protect you as a consumer against any bank failures will calm any nerves that you have.

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