Category: Personal Insurance
The FDIC began operations in 1934. The FDIC stands for Federal Deposit Insurance Corporation. The FDIC is part of the United States federal government but it operates independently of the government. This is important for the FDIC to complete its task of protecting depositors of insured banks located in the United States against the loss of their deposits if an insured bank fails. The FDIC protects depositors by providing insurance against loss and by overseeing the safety and soundness of member banks.
Any person or entity can have FDIC insurance coverage in an insured bank. A person does not have to be a U.S. citizen or resident to have his or her deposits insured by the FDIC. This means that people and companies from foreign lands are also insured by the FDIC. This is important in today’s global economy as the FDIC provides an incentive for foreign people and entities to put their money in US Banks.
The insurance that the FDIC provides is backed by the full faith and credit of the United States government. No depositor has ever lost a penny of FDIC-insured deposits.
What does FDIC deposit insurance cover?
FDIC insurance covers deposits received at an insured bank, including deposits in a checking account, savings account, money market deposit account (MMDA), certificate of deposit (CD), or an official item issued by a bank (such as a cashier's check or money order). FDIC insurance covers depositors’ accounts at each insured bank, dollar-for-dollar, including principal and any accrued interest through the date of the insured bank’s closing, up to the insurance limit.
Many banks now offer investment services where depositors can purchase stocks, bonds, annuities, and other financial and insurance products. The FDIC does not insure these financial instruments, so it is important to check with your bank to make sure the financial product you are buying is insured by FDIC insurance before you make the decision to put your money into any financial product.
By the way, the FDIC does not insure safe deposit box contents.
Does the FDIC insure financial investments that are United States government obligations, such as
U.S. Treasury bills, bonds or notes? No, but these investments are backed by the full faith and credit of the United States government.
How much FDIC insurance can I have? The amount of FDIC insurance you can have varies from time to time. For a long time the amount was $100,000, but that amount was recently raised to $250,000, and in some cases even more. Also remember that each deposit and depositor is insured up to the maximum amount.
The FDIC insures deposits that a person holds in one insured bank separately from any deposits that the person owns in another separately chartered insured bank. For example, if a person has a certificate of deposit at Bank A and has a certificate of deposit at Bank B, the accounts would each be insured separately up to $250,000. Funds deposited in separate branches of the same insured bank are not separately insured.
The FDIC provides separate insurance coverage for funds depositors may have in different categories of legal ownership. The FDIC refers to these different categories as “ownership categories.” This means that a bank customer who has multiple accounts may qualify for more than $250,000 in insurance coverage if the customer’s funds are deposited in different ownership categories and the requirements for each ownership category are met.
How does the FDIC insure that banks are safe?
The FDIC creates rules and regulations that banks must abide by in order to remain open. The FDIC regularly audits banks to ensure that rules are being followed. In addition, the FDIC requires that a sufficient amount of deposits be retained as "reserves" to ensure that the bank can meet any anticipated withdrawal demands by its customers. When a bank shows financial weakness as the result of an FDIC audit or, other financial indicator as regularly reviewed by the FDIC, the bank will be required to increase its reserves in order to prove to the FDIC and its depositors that it continues to be a safe and sound bank. These additional reserves are difficult for a bank to make as each dollar in reserve is a dollar that is not available to the bank to be used to fund a loan or other profit making investment for the bank. Increased reserve requirements by the FDIC usually cause a banks Board of Directors to question, review, and in some cases, remove executive management.
For more information on how the FDIC works for you, the bank consumer, you can go to the FDIC website at FDIC.GOV . If you have a question about a specific bank or deposit account as it relates to FDIC insurance you should go to the website of the bank where the deposit is held. Most accounts on bank websites will provide information regarding FDIC insurance. You can also go to your local bank branch and request information regarding your FDIC insurance questions. If your bank does not immediately respond will clearly, and easy to read, documentation regarding the FDIC insurance of your account, you should contact the FDIC and report your issue. You should also consider switching banks.