When you deposit money into a bank, you expect it to be safe and accessible whenever you need it. But what happens if the bank itself runs into trouble or even goes out of business? That’s where the Federal Deposit Insurance Corporation (FDIC) comes in.
FDIC insurance is a crucial safety net that protects depositors’ funds in the rare event of a bank failure. This ensures that you don’t lose your money (up to certain limits) if a financial institution goes belly up.
But there are rules and limits surrounding FDIC insurance that are important for banking customers to understand. Read on for a closer look at what the FDIC is, what “FDIC insured” means, and how to make the most of the FDIC’s coverage.
Key Points
• The FDIC protects depositors’ funds and ensures bank stability by offering insurance, monitoring banks, and managing failures.
• The agency insures checking accounts, savings accounts, money market accounts, CDs, and certain retirement accounts and prepaid cards.
• Coverage limits for FDIC insurance are $250,000 per depositor, per insured bank, and per account ownership category.
• When a bank fails, the FDIC ensures quick access to insured funds, typically by transferring them to another bank or issuing a check.
• Uninsured financial products like stocks, bonds, and crypto assets carry risks.
What Is the FDIC?
The FDIC is shorthand for the Federal Deposit Insurance Corporation. It’s an independent agency of the U.S. government that provides insurance to protect depositors’ money in case of a bank failure. You don’t need to apply for this insurance when you open a bank account — your deposits are automatically insured up to at least $250,000 at each FDIC-insured bank.
The National Credit Union Administration (NCUA) offers similar protection at credit unions.
History and Mission of the FDIC
The FDIC was created under the Banking Act of 1933 in response to the many bank failures during the Great Depression. In the early 1930s, the U.S. experienced one of the most severe banking crises in history. Thousands of banks failed, wiping out savings and triggering widespread financial panic. To prevent future economic disasters and protect the savings of ordinary Americans, Congress established the FDIC.
The FDIC officially began operations on January 1, 1934. Its initial insurance limit was $2,500 per depositor, which has been increased multiple times over the decades to reflect inflation and changing economic conditions. Today, the standard insurance coverage limit is $250,000 per depositor, per insured bank, for each account ownership category (more on exactly how this works below).
What Does the FDIC Do?
The FDIC plays a crucial role in the U.S. financial system by acting as both an insurer and a regulator.
Role of the FDIC in Maintaining Financial Stability
The FDIC’s primary responsibility is to safeguard depositors’ funds and ensure that banks operate in a sound and secure manner. It does this by:
• Providing deposit insurance: By insuring deposits, the FDIC protects individual and business accounts from losses due to bank failures. Customers do not pay for this insurance; banks cover the cost of insurance premiums.
• Conducting bank examinations: The FDIC regularly audits banks to ensure they are following sound financial practices and complying with federal regulations.
• Managing risk: The FDIC monitors financial institutions for signs of instability and typically steps in to address problems before they lead to failure.
• Handling bank failures: If a bank does fail, the FDIC ensures that depositors’ insured funds are quickly accessible. They often do this by transferring the funds to another bank or directly reimbursing depositors.
Recommended: What Are National Banks?
How the FDIC Protects Consumers
Thanks to FDIC insurance, the money you deposit in a checking account or savings account remains safe (up to certain limits), even if your bank goes out of business. In fact, no depositor has lost any insured money as a result of bank failure since the creation of FDIC insurance.
The FDIC’s protection extends beyond just insuring deposits, though. The agency also enforces consumer protection laws to prevent unfair practices by banks. These protections include:
• The Truth in Lending Act, which requires banks to disclose the terms and costs of loans and credit products.
• The Electronic Fund Transfer Act, which protects consumers when they use ATMs, debit cards, and electronic payment systems.
• The Fair Credit Reporting Act, which regulates how banks use and share consumer credit information.
Through these regulations, the FDIC ensures that banks treat consumers fairly and transparently, and help foster trust in the financial system.
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Types of Accounts Insured by the FDIC
The FDIC covers common banking products, including checking accounts, savings accounts, and money market accounts. However, not all financial products qualify for FDIC coverage.
How to Tell if Your Money Is FDIC-Insured
To determine if a bank is FDIC-insured, you can ask a bank representative or look for the FDIC sign when visiting a branch. If you use an online bank, the company’s website should contain information about its coverage.
Another option is to use the FDIC’s BankFind tool. BankFind provides access to detailed information about all FDIC-insured institutions, including branch locations, the bank’s official website, and the current operating status of the bank.
Commonly Covered Accounts Under FDIC Insurance
The FDIC insures all deposit accounts at insured banks and savings associations up to the FDIC’s limits, including:
Checking accounts
• Checking accounts
• Savings accounts, including high-yield savings accounts
• Money market accounts
• Certificates of deposit (CDs)
• Prepaid cards (if certain FDIC requirements are met; also note that funds are only insured in the event of bank failure, not loss or theft of card)
• Certain retirement savings accounts (in which plan participants have the right to direct how the money is invested)
Types of Accounts Not Insured by the FDIC
While the FDIC protects many types of deposit accounts, not all financial products are covered. For example, investments in the stock market and other securities carry inherent risks, and the FDIC does not cover losses in these markets.
Examples of Uninsured Financial Products
Products that are not insured by the FDIC include:
• Stocks
• Bonds
• Annuities
• Crypto assets
• Mutual funds
• Municipal securities
• Life insurance policies
• The contents of a safety deposit box
How FDIC Insurance Works
Understanding how FDIC insurance works is essential to maximizing your coverage and protecting your assets.
Coverage Limits and How They Apply
FDIC insurance covers up to $250,000 per depositor, per institution, and per ownership category. But what exactly does that mean? Let’s break it down.
• “Per deposit, per institution” refers to one person (the depositor) at one insured bank. If you own multiple deposit accounts at the same bank those deposits count towards the $250,000 limit. If you own accounts at two different banks, each account would have separate and full coverage.
• “Per ownership category” generally refers to whether the account is owned by one person (single) or owned by two or more individuals (joint). (Other types of ownership categories include certain retirement accounts, employee benefit plan accounts, and business accounts.)
For example:
• An individual with a checking account and a savings account at the same bank is insured for up to $250,000 across both accounts.
• A couple with a joint account is insured for up to $500,000 ($250,000 per depositor).
• A person with a checking account at one insured bank and a savings account at another insured bank is insured for up to $250,000 at each bank.
If you’re married and want to maximize your FDIC insurance, you and your spouse could each open individual accounts at one bank (resulting in each of you having up to $250,000 FDIC-insured), then also open a joint account (where each of you has $250,000 insured). Across all three accounts, you could have up to $1 million FDIC-insured at one bank.
If you’re not sure if all your cash on deposit at a bank is insured, the FDIC’s Electronic Deposit Insurance Estimator can show your specific deposit insurance coverage once you put in your account details.
What FDIC Insurance Does Not Cover
FDIC insurance does not cover:
• Investment losses (stocks, bonds, mutual funds)
• Losses due to bank fraud or theft
• Funds held at non-FDIC-insured banks
• Failure or bankruptcy of a non-bank
• Business losses related to bank failure
What Happens if a Bank Fails?
When a bank fails, the FDIC steps in to protect depositors and minimize disruption to the financial system.
Steps the FDIC Takes to Protect Depositors
If a bank were to collapse, the FDIC would intervene in two ways:
Giving Customers Access to Their Funds
The FDIC would pay depositors up to the insurance limit to cover their losses. So, if you had $10,500 in an insured account and the bank failed, you would be reimbursed for that amount. Typically, this happens within a few days after a bank closes.
The FDIC may pay depositors by providing a new account at another insured bank for the insured amount they had at the failed bank, or by issuing a check for that amount.
In some cases, you may be able to receive amounts higher than the coverage limit, but there is no guarantee. If the failed bank is acquired by another institution, your uninsured funds may also be transferred. If the failed bank is dissolved, you typically need to file a claim with the FDIC to recoup uninsured funds.
Becoming the “Receiver” of the Failed Bank
The FDIC also takes responsibility for collecting the assets of the failed bank and settling its debts. As assets are sold, depositors who had more than the $250,000 limit in an insured account may receive payments on their claim, though this can take several years.
How to Recover Your Money if a Bank Fails
Recovering your funds after a bank failure is usually straightforward. Here’s how it works.
FDIC Claims Process Explained
Because of the FDIC safety net, you won’t likely see fearful customers lining up to get their money the way they did before deposit insurance was established.
Still, when a bank closes, it can cause depositors to worry and wonder how to get their money. Typically, there are one of two scenarios when a bank fails:
• Most commonly, you would become a depositor at a healthy, FDIC-insured bank. You would have access to your insured funds at this new bank and could likely choose to keep your accounts there if you like.
• If there is not a healthy, FDIC-insured bank that can step in quickly, the FDIC will likely pay the insured depositor by check within as little as a few days after the bank closes.
As for immediate next steps if you learn your bank is closing, the FDIC aims to post information as promptly as possible, or you can contact the agency at 877-ASK-FDIC or visit the FDIC Support Center website.
The Takeaway
Though it’s a rare occurrence, a bank can fail when it takes on too much risk. This means the bank can’t meet its financial obligations to its depositors and borrowers. If your bank is covered by FDIC insurance, you can receive reimbursement up to certain limits, meaning your funds aren’t lost for good. FDIC insurance covers checking accounts, savings accounts, money market accounts, CDs, and other deposit accounts.
The FDIC does not cover some of the other financial products or services offered by banks, including stocks, bonds, mutual funds, annuities, and securities.
Putting your money in a brick-and-mortar financial institution isn’t the only way to make sure it’s protected. Many online banks, including SoFi, are FDIC-insured.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
How often does a bank fail?
Currently, bank failure is relatively uncommon. Since January 2020, there have been 12 bank failures in the U.S., but only three of these were major banks.
In stable economic periods, bank failures tend to be rare due to strict regulations and oversight. If an insured bank does go under, the FDIC steps in to protect depositors by covering funds up to the standard limit. This ensures customers can access their money with little to no disruption.
How does the FDIC differ from the NCUA?
The FDIC (Federal Deposit Insurance Corporation) insures deposits at banks, while the NCUA (National Credit Union Administration) insures deposits at credit unions. Both provide up to $250,000 in coverage per depositor, per institution, and per account ownership category.
The FDIC is an independent government agency, while the NCUA is a federal agency overseeing credit unions. Although they serve similar functions, they apply to different types of financial institutions — banks (FDIC) and credit unions (NCUA).
How many banks are FDIC insured?
As of the third quarter of 2024, the FDIC (Federal Deposit Insurance Corporation) insured 4,517 banks and savings institutions in the U.S. The FDIC protects deposits up to $250,000 per depositor, per insured bank, per account category. The number of FDIC-insured banks has declined over time due to mergers and acquisitions, but the FDIC continues to monitor and regulate the banking system.
Are credit unions FDIC insured?
No, credit unions are not insured by the FDIC (Federal Deposit Insurance Corporation). Instead, they are insured by the NCUA (National Credit Union Administration), which provides similar protection for deposits up to $250,000 per depositor, per credit union, and per account type.
The NCUA operates the National Credit Union Share Insurance Fund (NCUSIF) and ensures that credit union members’ deposits are safe even if the institution fails, similar to how FDIC insurance protects bank customers.
Does FDIC insurance cover online banks?
Yes, FDIC insurance typically covers online banks just as it does traditional brick-and-mortar banks. This protects your deposits up to $250,000 per depositor, per insured bank, per ownership category, even if the online bank fails. You can confirm an online bank’s FDIC status by checking the FDIC website, the bank’s website, or contacting the bank directly.
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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.
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SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
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