The Facts about FDIC Insurance
by Weiss Ratings | September 30, 2011
The Federal Deposit Insurance Corporation (FDIC) is a federal agency that promotes public confidence and stability in the nation’s banking system.
That’s right ... the FDIC’s primary role is to make us comfortable with the health of the banking system. It’s not to keep the banking system healthy or let us know when there are problems!
So that’s all the more reason you should check your bank’s financial health regularly, whether you have FDIC insurance or not.
We also think it’s important to understand one of the ways the FDIC accomplishes their goal – they oversee a federal insurance fund to cover bank depositors in case a bank fails.
And to help you get a handle on bank failures and FDIC coverage, here are answers to some questions depositors frequently have:
What is a bank failure?
A bank is closed by federal or state banking regulators when it is not able to meet its obligations to depositors and others.
Which banks are insured by the FDIC?
An “insured bank” must display an official FDIC sign at each teller window. The FDIC wants this symbol to instill confidence in bank customers that they will get back their insured deposits if a bank fails. And historically the FDIC has provided bank customers with access to their insured deposits whenever a bank has failed.
Banks chartered by the federal government and most state chartered banks are insured by the FDIC. But never assume that is the case. Always check to make sure the FDIC official sign is posted, and don’t hesitate to verify the bank’s status with management and even the directly with the FDIC.
What is the purpose of FDIC deposit insurance?
The FDIC insurance fund is intended to protect depositors’ funds in the case of a bank failure.
What types of accounts are insured by the FDIC?
FDIC insurance covers deposit accounts at insured banks including checking, NOW (Negotiable Order of Withdrawal) accounts, savings accounts, money market deposit accounts, and certificates of deposit (CDs) up to a specified dollar amount.
The FDIC does not insure money you invest in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if you purchased these products from an insured bank or savings association.
How much does the FDIC insure?
The standard insurance amount is $250,000 per depositor, per bank for each ownership category.
The most common account ownership categories are individual accounts, joint accounts, revocable trust accounts, and certain retirement accounts.
Deposits held in different categories of legal ownership at the same bank can be separately insured. So, it is possible to have deposits of more than $250,000 at one bank and be fully insured.
Deposits in separate branches of a bank are not separately insured. But deposits in one bank are insured separately from deposits in another bank.
Basic FDIC coverage limits for common account types:
- Individual Accounts (owned by one person with no beneficiaries): $250,000 per owner
- Joint Accounts (two or more persons with no beneficiaries): $250,000 per co-owner
- IRAs and other certain retirement accounts: $250,000 per owner
For revocable trust accounts, each owner is insured up to $250,000 for each unique eligible beneficiary named or identified in the trust, subject to specific limits and requirements.
You should check the FDIC website for more information regarding account types and how they affect your coverage.
And the FDIC has a cool tool you can use to estimate your FDIC insurance coverage.
Aren’t there special provisions in the Dodd-Frank Act
for insurance coverage on deposit accounts?
From December 31, 2010 through December 31, 2012, all noninterest-bearing transaction accounts are fully insured, regardless of the balance of the account and the ownership of the funds. This coverage is available to all depositors including consumers and businesses. This coverage is separate and in addition to the insurance coverage provided for a depositor’s other accounts held at an FDIC insured bank.
A noninterest-bearing transaction account is a deposit account where:
- Interest is not accrued or paid
- Depositors are permitted to make an unlimited number of transfers and withdrawals; and
- The bank does not reserve the right to require advance notice of an intended withdrawal.
Money Market Deposit Accounts (MMDAs) and Negotiable Order of Withdrawal (NOW) accounts are not eligible for this temporary unlimited insurance coverage.
Where does the FDIC get the money to
pay insured depositors of a failed bank?
The FDIC’s deposit insurance is funded by premiums already paid by insured banks and interest earned on its investment portfolio of U.S. Treasury securities.
Will I be notified if my bank has been closed?
Immediately after a bank is closed, the FDIC notifies depositors in writing at the depositor’s address on record with the bank.
When a failed bank is acquired by another bank, the assuming bank also notifies the depositors, usually with the first bank statement sent.
The public is also notified when a bank closes through the news media and notices posted at the bank.
The rules associated with FDIC deposit insurance can change, and this information could become outdated. To be sure the information you have is up to date, you can visit the FDIC website, which is updated regularly when changes occur. You can also review the Federal Deposit Insurance Act or call the FDIC at 1-877-275-3342.
Even if you make absolutely certain that the money you have at the bank is within the FDIC insurance limits, you should check the financial strength of your institution at Weiss Ratings on a regular basis. There is no doubt that the FDIC has historically made good on all insured deposits. And there is no doubt they will make every effort to do that in the future. But the process doesn’t ensure you’ll get access to your money right away. And since everyone knows that the past is not necessarily a good predictor of the future, we recommend the best way to keep your money safe is by selecting a financially strong institution to bank with. Just check Weiss Ratings.