- The Federal Deposit Insurance Corporation, or FDIC, is an independent government agency whose mission is to protect consumer money and regulate financial institutions.
- The FDIC insures up to $ 250,000 per depositor, per insured bank. But it does not cover all types of accounts.
- If your bank goes down, the FDIC will automatically return your funds to you as long as the account and funds are insured.
- Visit the Business Insider Investment Reference Library for more stories.
Choosing the bank where to store your money is an important decision. There are many options to choose from these days, with each financial institution offering various benefits and services. But when you store your money in a bank, you want to make sure it’s safe.
This is where the FDIC comes in.
Opening an account with an FDIC insured bank means your money is protected, even in the event of bank failure. “One of the most important things to remember is that deposit insurance is paid for by banks and protects depositors in the unlikely event that their bank goes bankrupt,” says Julianne Breitbeil, Senior Media Relations Specialist at the FDIC. “It is not personal insurance for miscellaneous losses.”
Here’s what you need to know about the FDIC, how it insures your money, and how to get your money back in the event of a bank closing.
What is the FDIC?
The FDIC is an independent agency of the US government. Its role is to protect consumers’ deposits in the event of failure of a financial institution such as a bank or a savings association. In doing so, the primary objective of the FDIC is to maintain the stability of the economy while enhancing public confidence in the US financial system.
While the FDIC operates independently from the federal government, the agency is backed by it. In other words: When you deposit money into an FDIC insured account, the US government guarantees that the money will always be accessible.
Founded in 1933 by Congress, the FDIC was created in response to the staggering number of bank failures during the Great Depression. To date, the FDIC oversees more than 3,500 financial institutions, which represents more than half of the institutions in the US banking system.
Although the FDIC is the one that insures your money, the funds actually come from banks insured by the FDIC. The FDIC will pay insurance to account holders with deposit accounts up to the insured limit.
What does the FDIC do?
The FDIC doesn’t just insure money – it provides a number of functions to hold banks accountable and consumer money safe:
- Protects your money: As mentioned, the FDIC offers deposit insurance and protects your money in the event of bank failure. Sometimes another bank can act as a “buyer” and buy the faltering bank. If a bank does not step in and buy the failed bank, the FDIC will take care of paying the account holder directly.
- Regulates financial institutions: He also oversees financial institutions for the protection, safety and soundness of consumers. The FDIC also ensures that they comply with consumer protection laws such as the Truth in Savings Act (TISA), the Expedited Funds Availability Act (EFA Act), and the Electronic Fund Transfer Act (EFTA). The FDIC also promotes fair loan laws and regulations.
- Solves failed banks: The FDIC is also the “receiver” of a failing bank, so it sells the bank’s assets and settles its debts, including claims for deposits in excess of the insured limit.
- Provides educational resources: The FDIC not only protects consumers, it also has a mission to educate them. Educational programs like Smart Money and robust consumer support resources, at podcasts on consumer protection and banking history and the Electronic deposit insurance estimator (EDIE), which can help you determine how coverage applies to you, there is a lot of material for consumers to explore.
What the FDIC insures
When you have a deposit account at an FDIC-backed bank – such as a savings, check, money market account, or certificate of deposit (CD) – your deposits are backed up to at least $ 250,000 per bank. , per person, per typing account. You do not need to purchase FDIC insurance. If it is an FDIC backed bank, you are automatically covered up to that amount.
The types of accounts that the FDIC insures include:
- Savings accounts
- Check accounts
- Money market accounts
- Certificates of deposit (CD)
- Bank checks
- Financial orders
What the FDIC does not provide
However, the FDIC does not insure all types of accounts such as payment applications, investment accounts, or insurance policies, which include:
- Investments in stocks, bonds or mutual funds
- Life insurance policies
- Safes or their contents
- Municipal titles
- Money in apps like PayPal or Venmo
An exception to PayPal is when you add money to your PayPal account using direct deposit. In this case, this money will be eligible for what is called FDIC transmission insurance.
When you buy cryptocurrency or add money to your Venmo account using remote capture or direct deposit, your Venmo balance funds can also be backed up by pass-through insurance from the FDIC.
While funds from a payment platform such as Venmo or PayPal are generally not backed by the FDIC, there may be exceptions, so be sure to sift through the fine print.
How to confirm your bank’s FDIC status
To find out if your financial institution is FDIC insured, you can either ask a bank representative, look for the FDIC sign in your bank, or use the BankFind tool, explains Breitbell.
This tool allows you to access specific information about FDIC-backed banks, such as current operating status, their website, branches, and the regulator to contact for more information or assistance.
How to File a Claim with the FDIC
In the event of bank failure, the FDIC will automatically step in and pay insurance to eligible account holders up to the insurance limit. You do not have to file a complaint. This happens automatically and no action is required on your part.
Under federal law, the FDIC is required to make these payments as soon as possible. Usually these payments are made within two business days of a bank closing, but usually within one business day.
As a customer of the bank, your account is transferred to an FDIC insured bank, where you will get a new account. The amount in your account will be the same as the insured balance you had at your old financial institution, which went bankrupt. Otherwise, you will receive a check for the balance that was protected.
Note that this is only when your financial institution goes bankrupt. If you are the victim of identity theft or fraud, it is not what the FDIC is protecting. This is an issue that your bank can handle and help. And if you’ve lost money through an investment account, insurance policy, or payments app, that’s also not something the FDIC manages.
The financial report
The FDIC was created by Congress in 1933 to protect consumer money in the event of a bank failure. If the financial institution you bank with closes, the FDIC will refund your money.
The FDIC will cover up to $ 250,000 per person, per account, no matter where you bank. Just be sure to check if your financial institution – and the type of account – is FDIC backed. You can easily check if the financial institution you are banking with is FDIC insured by speaking to a bank representative or by using the FDIC’s BankFind tool.