What Does The FDIC Insure?

FDIC (Federal Deposit Insurance Corporation) insurance might not be the sexiest personal finance topic, but it’s an important one.

Many people know that banks have federal insurance, but they may not know the details about what’s covered and what isn’t.

FDIC Insurance Has You Covered

The Federal Deposit Insurance Corporation (FDIC) was founded during the Great Depression to keep people from making runs on bank deposits.

FDIC insurance protects depositors against the loss of their funds if a bank fails.

FDIC insurance is backed by the full faith and credit of the United States government, and since it was established, no depositor has ever lost any FDIC-insured funds.

FDIC insurance covers funds in deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit (CDs).

FDIC insurance does not cover other financial products and services that insured banks may offer, such as stocks, bonds, mutual fund shares, life insurance policies, annuities or municipal securities.

FDIC coverage is automatic. Coverage is automatic up to the limits and the banks pay the insurance premiums, not the customers.

New FDIC Insurance Limits

The new FDIC limits took effect October 3rd, 2008 and last through December 31st, 2009, unless they are extended by another bill.

The new limit is $250,000 and covers single accounts, IRAs and other retirement accounts, and trust accounts.

Joint accounts are covered $250,000 per co-owner. For example, my spouse and I could theoretically have $1 million in FDIC insured funds in one bank – each with an individual account and a joint account.

To guarantee your entire account is covered, just keep your deposits under the limit. If you need additional coverage, open another account with the same bank, or another bank.

Unfortunately, bank failures continue to occur—over 150 institutions have closed their doors since the beginning of 2010.

The FDIC, or Federal Deposit Insurance Corporation, can be a real lifesaver if your bank or thrift institution goes under.

5 Misconceptions With The FDIC

But don’t wait until it’s too late–make sure you never go bust along with your bank by falling prey to these five common misconceptions about FDIC insurance:

Misconception #1: Every Financial Institution Has FDIC Insurance

Many, but not all, banks have FDIC insurance. Use the FDIC Bank Find lookup tool to make sure your money is in a safe institution.

You won’t find credit unions in the FDIC database—but don’t worry, they get their own version of federal insurance from the National Credit Union Administration (NCUA), which is virtually identical to FDIC insurance.

Go to ncua.gov to learn more about credit unions and to find institutions that are NCUA-insured.

Misconception #2: All Bank Assets Are Covered by FDIC Insurance

FDIC insurance covers deposits only, which is money you’ve put into a checking, savings, money market, certificate of deposit (CD), or retirement account.

It doesn’t cover investment products, like stocks, bonds, mutual funds, money market mutual funds, annuities, or life insurance, even if they were purchased from an FDIC-insured institution.

Additionally, stolen funds and assets stored in a bank safe deposit box are never covered by the FDIC.

Misconception #3: FDIC Insurance Applies Per Account

When you need to figure out how much of your money is covered by FDIC insurance, it can get a little tricky because it isn’t figured per account—it’s figured per depositor per ownership category up to $250,000 per institution.

See what I mean? It’s easier to understand when you boil it down to two simple questions:

1. What are your financial institutions? This is the first question to ask because you get full coverage at each unique FDIC-insured institution. So having your money spread out at different banks is a way to get more coverage if you need it. But remember that having money at different branches of the same bank doesn’t qualify for additional FDIC coverage.
2. How do you own your accounts? Next, take a look at your account ownership at each of your FDIC-insured institutions. Individuals and families typically have a combination of single accounts, joint accounts, and retirement accounts. A single account is held in your name only, a joint account is co-owned with one or more people, and a retirement account is a special tax-favored account that can be owned by one person only. For each of your ownership types, you get up to $250,000 in coverage. That means you could have $250,000 in a savings account in your name only (a single account) and $250,000 in an IRA (a retirement account) at the same bank and be fully insured. To double check your coverage limits, use the FDIC’s Electronic Deposit Insurance Estimator (EDIE).

Misconception #4: FDIC Insurance Is For Interest-Bearing Accounts Only

Even if your checking account doesn’t pay you a penny of interest, it’s still covered by the FDIC.

Non-interest-bearing accounts receive special treatment from December 31, 2010, through December 31, 2012, because they get unlimited coverage, regardless of your account balance.

This temporary limitless coverage applies to personal and business accounts and is separate from and in addition to the regular FDIC coverage of $250,000.

Misconception #5: There Are No Alternatives to FDIC Insurance

If you’re lucky enough to have so much cash in the bank that you’re above the allowable FDIC insurance limits for your personal or business accounts, speak with a bank representative about your situation.

Certain banks offer insurance from the Certificate of Deposit Account Registry Service (CDARS) to cover high deposit customers so they don’t have to move money to other institutions.

CDARS offers full FDIC protection on deposits of up to $50 million.