Most people realize that the funds in their checking and savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC), but few are aware of its history, its function, or why it was developed.
There are many things to consider when we talk about the safety of our money, the FDIC continues to evolve as it finds alternative ways to insure deposit holders against potential bank insolvency.
If you have seen the checking and savings accounts that we feature here at HMB most of them should say they are FDIC insured, but do you really know what it means? Read more below to find out what FDIC insurance is.
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Table of Contents
What Is FDIC Insurance?
Essentially, FDIC insurance protects customer bank accounts and deposits from bank failure. The Federal Deposit Insurance Corporation was established by the federal government to give consumers faith in the banking industry during the Great Depression. The FDIC insures up to $250,000 in various accounts like checking and savings, however, any investments in stocks or bonds aren’t covered.
To make sure you account is insured, see if the FDIC logo is on the inside of the bank as well as their website. Types of accounts that are backed by the “full faith and credit of the United States government” includes:
- Checking Accounts
- Savings Accounts
- Certificated of Deposits (CDs)
- Certain IRA retirement accounts (Insure by the FDIC)
- Money orders
- Money market deposit accounts
- Outstanding cashier’s checks, interest checks, and other negotiable instruments
- Accounts denominated in foreign currencies held in American banks
- Foreign banks holding FDIC insurance
Keep in mind that, if you are uncertain whether the account you are investing in is covered, check out the FDIC website or inquire at your financial institution.
Special Accounts To Watch Out For
After confirming that you have your money and valuables in a FDIC member bank, make sure that you don’t have more than $250,000 per insured category. Here is a list of accounts that react differently to the FDIC coverage:
- Single accounts
- Joint accounts
- Certain retirement accounts (includes traditional and Roth
- IRAs and self-directed 401(k) plans)
- Revocable trust accounts
- Irrevocable trust accounts
- Employee benefit accounts
- Corporation/partnership/unincorporated association accounts
- Government accounts
An important note is that single accounts and joint accounts are counted as separate categories. This means if you have $50,000 in your checking account and $250,000 in a joint account with someone else, then the whole $300,000 is covered because each of you get $250,000 FDIC insurance.
Effects of Inflation and Crisis
The limits for insured accounts changes over time; the government recognizes when there is a need for an increase, whether it’s due to the effects of inflation or financial crisis.
An example of this would be the reaction to the bank meltdown in 2008, the increase from $100,000 to $250,000 was initially temporary, but was later made permanent by the Wall Street Reform and Consumer Protection Act of 2010.
All American banks are FDIC insured, if the did not have insurance then they would not be allowed to proved banking products. But what about credit unions? Credit Unions are insured in an identical manner to FDIC insurance, except through the National Credit Union Share Insurance Fund (NCUSIF).
What Isn’t Covered?
Types of investment vehicles and issues that are not backed by the FDIC insurance. Here are some of the common ones:
- Mutual funds
- Treasury Securities
- Safe Deposit boxes
- Stocks and bonds
- Life insurance policies
- Contents of safe deposit boxes
- Robberies, embezzlement, and physical damage to bank property.
If you’re worrying about the last point, Keep in mind that the FDIC insurance is not the only type of insurance that a bank will own, it will carry insurance policies that cover just about anything that can happen , including robberies and embezzlement.
The FDIC is critical to monetary safety, it was created to insure that financial consumers are protected if the bank chosen should ever fail. Overtime, coverage limits increase to reflect changes in our society. While you’re here at HMB, check out our Bank Bonuses, Saving Rates and Credit Card Bonuses!