What Is FDIC Insurance?
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This article is part of a larger series on Business Banking.
FDIC insurance is a banking term that refers to the government-backed insurance provided by the Federal Deposit Insurance Corporation (FDIC). FDIC is an independent agency that protects depositors against financial losses in case the covered bank fails to repay them. The standard FDIC insurance amount is $250,000 per depositor per insured bank, for each account ownership category.
What Does FDIC-insured Mean and Why Is It Important?
An FDIC-insured account is an account from a bank or savings association that is covered federally by the FDIC. FDIC insurance is important because it protects the depositors in case the bank or savings association is unable to repay their deposits. In the event that the bank goes out of business or is otherwise unable to repay your deposited funds, FDIC insurance protects you from losing money up to the insured limit, which is usually $250,000. However, any funds you have deposited with the same financial institution above the coverage amount are at risk of loss.
What Is Covered With FDIC Insurance?
The coverage of FDIC insurance includes all accounts of a depositor at each insured bank. The insured amount includes the principal and any accrued interest through the date of bank default, up to the insurance limit. The standard insurance limit is $250,000 per depositor, per insured bank, for each account ownership category.
For example, you have a money market account, checking account, and certificate of deposit (CD) account in your name alone at an FDIC-insured bank. The total principal balance of all three accounts is $215,000, and they have an accrued interest of $5,000 in total at the time of the bank closure. This means that the full $220,000 is insured because the total balance plus interest does not exceed the $250,000 insurance limit for single ownership accounts.
FDIC insurance covers all types of deposit accounts at an insured bank or financial institution. It covers deposits in a savings account, checking account, money market deposit account (MMDA), CD, negotiable order of withdrawal (NOW) account. It also covers bank-issued items like cashier’s checks and money orders.
It’s important to note that FDIC insurance does not cover investment accounts offered by the insured banks, such as those invested in stocks, bonds, mutual funds, life insurance policies, annuities, and municipal securities.
FDIC Insurance Account Categories
Account Category | Description | FDIC Insurance Coverage |
|---|---|---|
Single Account | A deposit account under the name of one person (including a business account for a sole proprietorship), without named beneficiaries | $250,000 per account owner |
Joint Account | A deposit account under the names of two or more individuals, without named beneficiaries | $250,000 per co-owner |
Certain Retirement Account | Self-directed retirement accounts like individual retirement accounts (IRAs), 401(k)s, profit-sharing plans, and self-directed Keogh plan accounts | $250,000 per account owner |
Revocable Trust Account | A deposit account owned by one or more people with one or more beneficiaries. This can be revoked, terminated, or changed at any time, at the discretion of the account owners. | Owner insured $250,000 for each unique beneficiary designated |
Irrevocable Trust Account | A deposit account in the name of an irrevocable trust where the owner contributes deposits to the trust and gives up all power to cancel or change the trust. | $250,000 for the trust—more coverage is available if requirements are met |
Employee Benefit Plan Account | A deposit of a pension plan, defined benefit plan, or other employee benefit plan where investment decisions are made by a plan administrator and not self-directed | $250,000 for the noncontingent interest of each plan participant |
Government Account | A deposit account owned by the government or federal agencies | $250,000 per official custodian |
Corporation, Partnership, or Unincorporated Association Account | Deposits owned by corporations, partnerships, and unincorporated associations that are separately organized under state law. | $250,000 per entity (corporation, partnership, or unincorporated association) |
Why It’s Important to Know Your Total Deposit Amount
Knowing the total amount of deposits you have in one bank is important because it can help you make a strategic plan to ensure that all your deposits are fully insured.
For example, if your total deposit in one bank is close to the standard FDIC insurance coverage of $250,000, you may want to consider opening another account at a second, unrelated bank to deposit your other funds so that they can also be covered. It’s important for people and businesses with large cash deposit accounts to utilize multiple banks to protect their funds against loss.
You can get detailed information about your specific deposit insurance coverage through the FDIC’s Electronic Deposit Insurance Estimator, where you will be asked to provide information about your accounts. You can also call the FDIC at 877-275-3342 and ask for assistance from an FDIC deposit insurance specialist.
How To Know if a Bank Is FDIC-insured
You can ask a bank representative directly or look for the FDIC sign at the bank premises or on its website to determine if a bank is FDIC-insured. You may also call the FDIC at 877-275-3342 or use the FDIC’s BankFind tool to know if a particular bank is covered by FDIC insurance.
FDIC sign example
Pros & Cons of FDIC Insurance
| Pros & Cons of FDIC Insurance | |
|---|---|
| PROS | CONS |
| It protects depositors against financial losses in case the bank or savings association fails | It has a limited coverage |
| Coverage is automatic in FDIC-insured banks and depositors are not the ones paying for the insurance premium | It does not cover investment accounts |
Bottom Line
FDIC insurance refers to the insurance provided by the FDIC that protects depositors against the loss of their insured deposits in case an FDIC-insured bank or savings association defaults. The standard FDIC insurance coverage is $250,000 per depositor, per bank, for each account category. While FDIC covers most deposit account types offered by an insured bank, it does not include investment products.
