- Financial Insurance

Deposit Insurance

In the United States, the Federal Deposit Insurance Corporation (FDIC) insures deposits made to accounts in FDIC-insured banks and other financial institutions. The aim of federal deposit insurance is to strengthen public confidence and the financial stability of banking institutions.

Federal deposit insurance and the FDIC were established in 1933 by President Franklin Roosevelt in response to the collapse of many banks and financial institutions during the Great Depression. If depositors lose confidence in a financial institution and attempt to withdraw their deposits en masse in a “run on the bank”, other depositors will usually avoid that bank and it will be unable to replace its declining funds. This can result in the bank’s collapse. Federal deposit insurance is designed to prevent this by insuring deposits up to a set limit, so that if the member institution fails, the depositor can be sure of getting their savings and interest returned to them.

The FDIC currently insures deposits up to $100,000 per account holder, per institution, and up to $250,000 per self-directed retirement account. Federal deposit insurance covers the principal and earned interest on deposits in checking, savings and money market accounts and certificates of deposit (savings certificates with a maturity date and specified fixed interest rate).

Federal deposit insurance does not cover U.S. Treasury bills, bonds or notes or investments in mutual funds, stocks, bonds, annuities, life insurance policies or municipal securities, even if these are purchased through a FDIC-insured institution.

Single accounts are covered up to $100,000, and in joint accounts each co-owner is covered up to $100,000. Trusts accounts, including payable-on-death trust accounts, living or family trust accounts, are covered up to $100,000 per beneficiary, so if you have three children and a spouse, then the account would be covered up to $400,000. Employee benefit plan accounts, such as pension and profit-sharing plans, are also covered up to $100,000 per member institution. Corporations, partnerships, charities and associations are covered by the FDIC up to $100,000 no matter how large they are or how many stockholders or members they represent.

Under the FDIC federal deposit insurance coverage, deposits with an insured financial institution are available to the depositor within a few days of the bank’s closure.

Federal deposit insurance gives peace of mind that your hard-earned savings will be secure in the bank. Before opening an account at a financial institution you should check that it is a member of the Federal Deposit Insurance Corporation.