Jane Dotson
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the US government that insures deposits in the event of an insured bank failure. FDIC insurance covers traditional deposit accounts, including checking accounts, savings accounts, money market deposit accounts, and certificates of deposit (CDs). The FDIC does not insure non-deposit investment products, such as stocks, bonds, mutual funds, annuities, and life insurance policies. It's important to note that FDIC insurance is not the same as investment insurance, and investors should be aware of the risks associated with non-insured investment products. To protect against the potential loss of principal amounts invested, investors can look into other forms of protection, such as the Securities Investor Protection Corporation (SIPC) or the National Credit Union Share Insurance Fund, which provides coverage for certain credit union accounts.
| Characteristics | Values |
|---|---|
| Type of Agency | Independent government agency |
| Agency Name | Federal Deposit Insurance Corporation (FDIC) |
| Year of Formation | 1933 |
| Purpose | Minimise the impact of economic downturns on depositor funds and the economy |
| Insured Deposits | Checking account, savings account, money market deposit accounts, certificates of deposit, money orders, cashier's checks, business accounts |
| Coverage Limit | $250,000 per depositor, per insured bank, per account type |
| Coverage Type | Covers depositors' accounts dollar-for-dollar, including principal and accrued interest |
| Insurance Coverage | Automatic when a deposit account is opened at an FDIC-insured bank |
| Non-Covered Investments | Mutual funds, stocks, bonds, annuities, life insurance policies, Treasury securities, crypto assets |
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What You'll Learn
FDIC insures deposits, not investments
The Federal Deposit Insurance Corporation (FDIC) is a government-established agency formed in 1933 to protect depositors from losing their money in the event of a financial collapse. It does this by insuring deposits in FDIC-insured banks, not investments. FDIC insurance covers traditional deposit accounts, including checking accounts, savings accounts, money market deposit accounts, certificates of deposit (CDs), money orders, cashier’s checks, and business accounts. It's important to note that FDIC insurance does not cover non-deposit investment products, even if they are offered by FDIC-insured banks.
FDIC insurance is automatic when you open a deposit account at an FDIC-insured bank, and it covers deposits up to $250,000 per depositor, per insured bank, for each account ownership category. This means that if you have multiple accounts at the same bank, the total amount in those accounts is insured up to $250,000. If you have accounts at different banks, the FDIC will insure each account separately, up to $250,000 per bank.
There are different types of deposit accounts that are insured by the FDIC, including single accounts, certain retirement accounts, employee benefit plan accounts, joint accounts, trust accounts, and business accounts. For trust accounts, the FDIC uses the formula: Number of Owners x Number of Beneficiaries x $250,000 = Amount Insured (up to $1,250,000 per owner for all trust accounts). Retirement accounts, such as Individual Retirement Accounts (IRAs), are also insured up to $250,000 per depositor, per insured bank.
It's important to note that FDIC insurance does not cover investments, even if they are purchased at an insured bank. This includes mutual funds, stocks, bonds, annuities, life insurance policies, and Treasury securities. While money market mutual funds are not insured, money market deposit accounts are FDIC-insured and carry no risk to your deposited funds. Therefore, it is essential to understand the difference between these two types of accounts and carefully consider the level of risk associated with each before investing.
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FDIC-insured accounts
The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by Congress to maintain stability and public confidence in the nation's financial system. The FDIC was formed in 1933 in response to the widespread failure of America's banks in the 1920s and 1930s, which contributed to the Great Depression. The FDIC insures deposits, examines and supervises financial institutions for safety, soundness, and consumer protection, and manages receiverships.
The amount of FDIC insurance coverage depends on the ownership category and account type. For single accounts, the coverage limit is $250,000 per depositor, per insured bank. For trust accounts, the FDIC uses the formula: number of owners x number of beneficiaries x $250,000 = amount insured (up to $1,250,000 per owner for all trust accounts). The coverage limit for employee benefit plan accounts is $250,000 per bank, per participant. For government accounts, the Official Custodian of a public unit is insured up to at least $250,000 per bank, with coverage amounts potentially higher depending on the deposit type and location of the public unit.
FDIC deposit insurance is automatic when you open a deposit account at an FDIC-insured bank. You can use the Electronic Deposit Insurance Estimator (EDIE) to calculate how much of your bank deposits are covered by FDIC insurance and if any of your funds exceed the coverage limits.
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FDIC ownership categories
The Federal Deposit Insurance Corporation (FDIC) provides deposit insurance coverage for various ownership categories. The ownership category determines the rules that apply to a particular deposit. The FDIC recognises 14 ownership categories, including:
Single Accounts
A Single Account is a deposit owned by one person with no beneficiaries. This includes accounts held in one person's name only, accounts established for one person by an agent, nominee, guardian, custodian, or conservator, and accounts held in the name of a business that is a sole proprietorship. Single Accounts owned by the same person at the same bank are added together and insured up to $250,000. If the owner of a Single Account has designated beneficiaries, the account is insured as a Trust Account.
Certain Retirement Accounts
Retirement accounts are insured under the Certain Retirement Accounts ownership category if they qualify as one of the specified types of accounts, such as a Section 457 deferred compensation plan account. All retirement accounts owned by the same person at the same insured bank are added together and insured up to $250,000.
Joint Accounts
A Joint Account is a deposit account owned by two or more people without named beneficiaries.
Trust Accounts
Trust Accounts are calculated using the formula: Number of Owners x Number of Beneficiaries x $250,000 = Amount Insured (up to $1,250,000 per owner for all trust accounts).
Employee Benefit Plan Accounts
These accounts represent funds of a plan where investment decisions are made by a plan administrator, not the participants. The interests of each participant's non-contingent interest under the plan are insured up to $250,000 per bank.
It is important to note that the type of account, such as checking or savings, does not affect the amount of insurance coverage. Additionally, depositors cannot increase coverage by opening additional accounts in the same ownership category. The FDIC provides separate coverage for deposits held in different ownership categories, and depositors may qualify for coverage over $250,000 if they meet all FDIC requirements.
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Securities Investor Protection Corporation (SIPC)
The Securities Investor Protection Corporation (SIPC) is a federally mandated, non-profit, member-funded, non-government US corporation created under the Securities Investor Protection Act (SIPA) of 1970. It was formed to restore confidence in the US securities market after the "Paperwork Crunch" of 1968-70, during which there was an explosion in the volume of trading that caused chaos in the recording of transactions.
The SIPC protects investors when a brokerage firm fails financially and assets are missing from customer accounts. It recovers missing cash or securities if a brokerage firm goes out of business or cannot meet its obligation to customers. It does not protect investors against losses caused by a decline in the market value of securities, nor does it provide protection for investment contracts not registered with the SEC.
The SIPC has a coverage limit of $500,000 (net equity) per cash/securities account, and $250,000 for cash-only accounts. It protects most types of securities, including stocks, bonds, and mutual funds. It is important to note that SIPC protection only applies to customers of its member firms, and firms are required by law to disclose if they are not members.
Since its creation, the SIPC has recovered billions of dollars for investors, advancing $3.1 billion to recover $141.8 billion in assets for an estimated 773,000 investors as of December 2020.
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Share Insurance Coverage
The NCUSIF is backed by the full faith and credit of the US government, providing peace of mind for those with insured savings. The fund insures the accounts of millions of account holders, maintaining around 1.30% of federally insured credit union deposits. This insurance is automatic for members of federally insured credit unions, and in the rare event of a credit union failure, the NCUSIF guarantees the balance of each member's account, up to a limit of <$250,000 per individual depositor.
The NCUSIF covers both shares and deposits, including share drafts, regular shares, and share certificates. It's important to note that the NCUSIF does not cover digital assets or cryptocurrencies, and it does not insure money invested in stocks, bonds, or mutual funds.
The NCUSIF plays a crucial role in maintaining the stability of credit unions, regularly reviewing their operations and working closely with state regulatory authorities. This rigorous oversight ensures that only credit unions with sound operational standards qualify for NCUSIF coverage, making failures extremely rare. As a result, members can confidently conduct business with federally insured credit unions, knowing that their insured savings are protected.
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Frequently asked questions
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the U.S. government that protects you against the loss of your deposits in an FDIC-insured bank or savings association that fails. FDIC insurance covers depositors' accounts at each insured bank, including principal and any accrued interest, up to the insurance limit of $250,000 per depositor, per insured bank, based on account type.
The FDIC covers traditional deposit accounts, including checking accounts, savings accounts, money market deposit accounts, certificates of deposit (CDs), money orders, cashier’s checks, and business accounts. The FDIC also covers certain retirement accounts and employee benefit plan accounts, joint accounts, trust accounts, and government accounts.
No, the FDIC does not insure non-deposit investment products, such as stocks, bonds, mutual funds, annuities, life insurance policies, and Treasury securities. Investment products are typically subject to investment risks, including the possible loss of the principal amount invested.
