Haris Ashley
Federally insured financial institutions are organisations that are protected or insured by a federal government agency. The Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) are the two main federal agencies that insure financial institutions. The FDIC insures banks and savings associations, while the NCUA insures credit unions. Both agencies guarantee the protection of depositors' funds up to $250,000 per depositor, per institution, and per ownership category. Checking accounts, savings accounts, money market deposit accounts, and certificates of deposit are generally insured by the FDIC, while credit union members' accounts are protected by the NCUA.
| Characteristics | Values |
|---|---|
| Type of institution | Banks and thrifts (savings and loans) |
| Deposit insurance | Up to $250,000 per depositor, per institution, and per ownership category |
| Deposit accounts covered | Checking accounts, savings accounts, certificates of deposit (CDs), and money market accounts |
| Other items covered | Official items issued by an insured bank |
| Non-US citizens | Covered as long as their deposits are in a domestic office of an FDIC-insured bank |
| Bank failures | The FDIC steps in to protect customers' funds and assumes control of the assets and debts of the bank |
| Number of FDIC-insured banks | Approximately 4,600 as of November 2023 |
| Bank requirements | Certain liquidity and reserve requirements must be met to qualify for deposit insurance |
| Credit unions | Covered by the National Credit Union Share Insurance Fund (NCUSIF), which is administered by the National Credit Union Administration (NCUA) |
| NCUSIF insurance limit | $250,000 per depositor |
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![Federal Deposit Insurance Act: [As Amended Through P.L. 117–263, Enacted December 23, 2022]](https://m.media-amazon.com/images/I/517mroyL3UL._AC_UY218_.jpg)
What You'll Learn
Banks and thrifts
The FDIC is an independent federal government agency that insures deposits in commercial banks and thrifts. Federal deposit insurance is mandatory for all federally-chartered banks and savings institutions. All states also require federal deposit insurance for newly-chartered banks that accept retail deposits. The FDIC has no authority to charter a bank, and may only close a bank if the bank's charterer fails to act in an emergency. It does, however, have the authority to revoke an institution's deposit insurance, essentially forcing the bank to be closed.
The FDIC manages two deposit insurance funds: the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF). The BIF insures deposits in commercial banks and savings banks up to a maximum of $100,000 per account. Insured banks pay for deposit insurance through premium assessments on their domestic deposits. Foreign deposits are not insured and are not subject to deposit insurance premiums.
Thrift institutions and credit unions are like specialty shops that have expanded their lines of business to better compete for market share. Connecticut law grants thrifts the same powers as commercial banks. Savings and loan associations and savings banks can be owned by shareholders or by their depositors and borrowers ("mutual" ownership). They are referred to as "thrifts" because they originally offered only savings accounts or time deposits. Now, they offer checking accounts (demand deposits) and make business and consumer loans, as well as mortgages.
Federally chartered thrifts are regulated by the Office of the Comptroller of the Currency (OCC), and state-chartered thrifts are regulated by the FDIC.
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Credit unions
The NCUA's role in insuring credit unions is similar to that of the Federal Deposit Insurance Corporation (FDIC) for banks. While the FDIC insures deposits at banks and thrifts, the NCUA provides insurance for credit unions, guaranteeing the protection of depositors' funds up to the same limit of $250,000. This means that credit union members' savings are protected, and they have never lost insured savings in a federally insured credit union.
It is important to note that the NCUA does not insure certain investment or insurance products, such as stocks, bonds, mutual funds, ETFs, life insurance policies, annuities, or municipal securities, even if these are offered by a federally insured credit union. Credit unions often provide these services through third parties, and the NCUSIF does not cover them.
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Checking accounts
The FDIC is an independent federal agency that safeguards customer deposits in the event of bank failures or theft. It was created to restore faith in the American banking system following the Stock Market Crash of 1929 and the Great Depression. FDIC insurance covers traditional deposit accounts, including checking accounts, savings accounts, and money market deposit accounts. It's important to note that FDIC insurance does not cover investment options such as stocks, bonds, mutual funds, or safe deposit boxes.
When it comes to checking accounts, FDIC insurance provides peace of mind that your deposited funds will be safe should your bank fail. This insurance is automatic when you open an account at an FDIC-insured bank, and you don't need to apply for it separately. The FDIC steps in to protect customers' funds and ensure they have access to their money, even if the bank can no longer meet its obligations.
It's worth mentioning that credit unions are regulated differently from banks. Credit union accounts may be insured by the National Credit Union Administration (NCUA), which offers federal deposit insurance through the National Credit Union Share Insurance Fund (NCUSIF). This insurance fund was created by Congress in 1970 to protect deposits in member credit unions, with coverage of up to $250,000 per account.
To summarize, checking accounts are generally federally insured, primarily through FDIC insurance, which guarantees the safety of your deposits up to specified limits. Credit union checking accounts may be insured by the NCUA, providing similar protection for your funds. It is always a good idea to review the deposit insurance coverage offered by your financial institution to ensure your money is protected.
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Savings accounts
The FDIC covers traditional bank deposit products from insured banks, such as checking and savings accounts, but does not cover investments or payment providers such as PayPal. The FDIC insures up to $250,000 per depositor, per institution, and per ownership category. This limit applies to all single accounts owned by the same person at the same bank. For example, an individual with $200,000 in a high-yield savings account and $125,000 in a certificate of deposit (CD) at the same bank will have $75,000 of their deposits uninsured. To ensure federal insurance coverage, one could open an account at a separate FDIC-insured bank or transfer some money to a jointly owned account.
The FDIC also protects interest earnings, provided that the principal and interest do not exceed the $250,000 cap. For instance, if an individual has $248,000 in a CD account that has earned $2,000 in interest, the full amount is covered because the account does not exceed the insurance limit. Additionally, FDIC insurance covers other official items such as cashier's checks and money orders.
Trust accounts are also insured by the FDIC, with each owner of a trust account insured up to $250,000 per unique eligible beneficiary, with a maximum of $1,250,000 for five or more beneficiaries. For formal trust accounts, the account title must indicate that the account is held pursuant to a trust relationship, using terms such as "living trust", "family trust", or "irrevocable trust". Informal revocable trusts, often called payable on death (POD) or in trust for (ITF) accounts, are created when the account owner signs a deposit account agreement, directing the bank to transfer the funds to one or more named beneficiaries upon the owner's death.
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Federal Deposit Insurance Corporation (FDIC)
The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation that provides deposit insurance to depositors in American commercial banks and savings banks. The FDIC was created by the Banking Act of 1933, enacted during the Great Depression to restore trust in the American banking system. Since its inception, the FDIC has worked to protect customers' funds and prevent bank runs, which were common before its establishment.
The FDIC insures deposits in member banks up to $250,000 per depositor, per institution, and per ownership category. Ownership category refers to who owns the account, and the FDIC provides insurance for various types of accounts, including checking accounts, savings accounts, certificates of deposit, and money market accounts. The FDIC insurance is backed by the full faith and credit of the United States government, and since its start in 1933, no depositor has lost any FDIC-insured funds.
The FDIC also has the authority to regulate and supervise state non-member banks and handle complaints and inquiries about FDIC-insured state banks that are not members of the Federal Reserve System. Additionally, the FDIC provides resources for bankers, including guidance on regulations, information on examinations, legislation insights, and training programs.
The FDIC has a tool called the Electronic Deposit Insurance Estimator, which helps depositors determine their specific deposit insurance coverage by inputting their account details. The FDIC also publishes a guide that addresses common questions about deposit insurance and provides information on the general characteristics of FDIC deposit insurance.
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Frequently asked questions
The FDIC insures up to \$250,000 per depositor, per institution, and per ownership category.
The FDIC insurance covers deposit accounts such as checking and savings accounts, money market deposit accounts, retirement accounts, and certificates of deposit.
The FDIC insurance does not cover investment options such as stocks, bonds, mutual funds, annuities, life insurance policies, and contents of safe-deposit boxes.
Banks and thrifts are insured by the FDIC, while credit unions are insured by the National Credit Union Administration (NCUA).
