What Is FDIC Insurance and How Does It Protect Me?

Can you imagine waking up to the news of your bank suddenly closing its doors? You’d likely be panicked about the safety of your money — the security of your life savings.

It seems like a scene from a financial horror film. But, fortunately, the safety of your hard-earned cash comes with four letters: FDIC.

FDIC insurance is the knight in shining armor when it comes to protecting you from bank default (or troubles). Here’s what you need to know.

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FDIC Insurance: The History

The Federal Deposit Insurance Corporation (FDIC) was created during the Great Depression, specifically in 1933. The depression brought economic turmoil and general distrust of the banking system. So, the federal government created the FDIC to restore trust. 

FDIC insurance is a federal guarantee that protects you by insuring your deposits. This means that if a bank collapses, you won’t lose your money.

While bank failures were more common in the 1930s (when roughly ⅓ of all banks failed), bank failures do still happen! In 2023, at least four banks failed, including Silicon Valley Bank, Signature Bank, and First Republic Bank. 

But, thanks to the FDIC, no insured deposits were lost.

What Are the FDIC Coverage Limits?

Banks that are federally insured are currently set to cover their depositors up to $250,000 per depositor, per bank, and per legal ownership category. 

This means you (the depositor) are only insured up to $250,000 per bank if you maintain the single ownership category. 

If you don’t want to open multiple bank accounts, you could still be eligible for more insurance with relationship structuring. 

For example, since banks extend the deposit insurance per depositor, per relationship category, you could open a joint account and get more insurance. 

Ownership categories and relationship structuring

Let’s say you were to open a joint account with your spouse. You would then be covered up to $500,000 at that institution. 

This is on top of an additional $250,000 parked in a separate account if you had a single ownership account (an account in just your name). 

And your spouse could do the same, allowing an additional $250,000 in a single-owner account, too. 

But if you were to open another joint account, your coverage would be capped at $500,000 since the ownership category is “joint.” 

However, if you added another owner (like a child) to the account, they would also get an additional $250,000.

Here are examples of ownership categories:

• Single: One person
• Joint: Two or more people
• Trust accounts/inherited accounts: Named beneficiaries or PODs (payable on death) also extend your insurance 
• Business accounts: Businesses are their own legal entity and are considered a depositor
• Deposit retirement accounts: Accounts like IRAs are usually insured separately

If you are having a hard time figuring out your coverage limits and how your ownership category affects them, the FDIC has a free tool that will help you.

Types of Accounts Covered by the FDIC

Any accounts opened, or any instrument purchased, at an FDIC-insured bank, are covered by FDIC insurance. This includes:

• Checking accounts
• Savings accounts
• Money market accounts
• Certificates of deposit
• Cashier’s checks
• Money orders 
• NOW (Negotiable Order of Withdrawal) accounts

Know that the FDIC does not cover investments like stocks, bonds, mutual funds, annuities, municipal securities, and insurance policies. 

Additionally, if you have a safe deposit box at a bank, the contents of the box are not covered. 

READ MORE: Checking vs. Savings Accounts: What’s the Difference?

How To Verify Your Bank’s FDIC Insurance Status

First, know that you, as the depositor, do not have to pay anything or do anything to activate FDIC insurance. Just opening an account at an insured bank will protect you.

Banks aren’t covered by FDIC insurance by default. They have to apply for FDIC insurance, and it’s not free for them to do this — banks pay to have FDIC insurance.

While most banks are covered, it’s still wise to check. To know if your bank is covered you can:

• Go into any branch of your bank. Your bank will have signs around the institution that display the FDIC logo. FDIC-insured banks are required to display a certain amount of signs per teller window or office. 
• Check out your bank’s website. You may have to check the fine print, but you should see that the bank advertises being “a member FDIC” or displays the FDIC logo. 
• Ask your bank directly. When in doubt, pick up the phone and ask. There’s no dumb question when it comes to the safety of your money.
• Use the FDIC’s BankFind tool. You can locate a bank there if you are unsure. 

READ MORE: How to Successfully Switch Banks

FAQs

What things are not insured by FDIC?

Investments like stocks, bonds, and mutual funds are not covered by FDIC insurance as they are not deposit accounts. 

Additionally, the contents of safe deposit boxes, while they might be located in a bank, are not insured by the FDIC. 

Things like cryptocurrencies and insurance policies are also not protected by the FDIC. 

Are joint accounts FDIC-insured to $500,000?

Yes, joint accounts are FDIC-insured up to $500,000. This is because each owner is covered separately and has $250,000 of insurance. 

However, if you have both a joint checking and joint savings at the same institution, you are still only insured up to $500,000 total. This is because FDIC insurance is per ownership category, not account. 

Do you really need FDIC insurance?

Yes, you need FDIC insurance as it protects you and safeguards your cash. Also, banks that are FDIC-insured are required to meet regulatory standards and will be of higher quality. 

By choosing an FDIC-insured bank you are leaving your money in safe hands. 

TL;DR: What Does FDIC Insurance Do for You? 

The FDIC was established by the federal government to protect bank depositors up to $250,000 per institution, per depositor, per ownership category. The FDIC has protected many depositors in the wake of bank collapse. 

Having FDIC insurance provides financial security for your cash. 

For more tips on managing your money, check out these episodes of the Erika Taught Me podcast:

• 10 Steps Towards Financial Wholeness
• Investing Advice from the Most Powerful Woman on Wall Street
• How To Budget for Beginners

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