The Federal Deposit Insurance Corporation (FDIC) is a government agency that insures bank deposits and promotes the safety and soundness of financial institutions. The FDIC is an independent government agency that was created by the Glass-Steagall Act of 1933. This was the same act that created the Federal Reserve and provided safeguards against bank failure. The act also requires the FDIC to protect the accounts of consumers at federal savings and national banks.
Although the FDIC does not regulate banks in the same way the Federal Reserve does the banking industry, they have a strong interest in the solvency of banks and their ability to repay depositors’ account funds..
What is the history of the FDIC?
The FDIC was created to restore public confidence in the nation’s banking system. The FDIC’s mission is to protect consumers’ deposit accounts at insured banks and savings institutions by insuring accounts up to $250,000.
FDIC’s creation was a direct response to the bank failures that occurred during the Great Depression of the early 1930s. At that time, bank failures were common. Many banks had invested in bonds and stocks that had become worthless. When the banks were no longer able to keep their deposits in those accounts, they had to pay them out to depositors. This created the problem of many depositors being paid at the same time.
The FDIC insures deposits at the nation’s banks and savings associations. As of 2019, there are over 5,000 members of the FDIC. The FDIC does not insure deposits in foreign banks or in any other kind of financial institution.
The FDIC insures bank deposits through the Deposit Insurance Fund (DIF), which is funded by premiums paid by insured depository institutions and earnings on investments of the Fund. It has no authority to borrow to replenish the DIF, and the insurance funds held by the FDIC are the only source of money for the payment of insured deposits. The FDIC insures deposits at thousands of FDIC-insured institutions, with a combined total of assets worth over $10 trillion USD.
The Federal Deposit Insurance Corporation was given a number of responsibilities under the 1933 act, including the following:
- Deposit insurance on funds of the Federal Deposit Insurance Corporation.
- Liquidation of closed and failed banks.
- Overseeing the administration of the insurance funds of the Federal Deposit Insurance Corporation.
- Responsible for overseeing member bank activities.
What is the FDIC’s history of bank failures?
Since 1934, when FDIC insurance went into effect, it has paid over $52.5 billion in insured deposits. The number of bank failures peaked in 1991 with 157 banks. However, the number of bank failures have declined in recent years. Before the FDIC was created, bank failures had become commonplace and often resulted in runs on banks and financial panics.
How much is insured?
Your money is insured up to $250,000 per bank, per account, per ownership category. The ownership categories are single owner (such as an individual), co-owner (such as a husband and wife) and beneficiaries of an estate. Some of the types of accounts that are protected include the following:
- Checking accounts
- Savings accounts
- Money market deposit accounts (MMDsAs)
- Time deposits, including: Certificates of deposit (CDs)
- Instalment accounts
- Individual retirement accounts (IRAs)
What if my account is worth more than $250,000?
If your account exceeds $250,000, the insurance limit, then you need to open multiple accounts at one bank or open multiple accounts at different banks.
What does the FDIC not cover?
The insurance is backed by the full faith and credit of the United States government. It covers the loss of principal on accounts held at insured institutions in the event that the institution fails. It also covers only losses that result from bank failures and does not cover investment losses. Thus, coverage is not provided for losses resulting from:
- Money you borrow from a bank
- Stock purchases
- Life insurance policies
- Brokerage accounts
- Investments in the stock market
- Real estate
- Commodities such as gold, silver, or other precious metals
The Federal Deposit Insurance Corporation (FDIC) is a government agency that insures bank accounts and other deposit accounts up to $250,000. This means that if a bank fails, your money will be protected up to $250,000. You will not lose a penny in any bank accounts. Use it with confidence knowing money in banks that are FDIC approved are protected from various situations resulting in monetary losses.