The Basics of FDIC Insurance

March 23, 2023
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When you open a bank account such as a checking or savings account, you may notice that the bank says they are FDIC-insured. It’s something a lot of people don’t even pay much attention to. However, it could ultimately make a significant difference.

What is FDIC Insurance?

FDIC insurance means the banking institution is federally insured by the U.S. Federal Deposit Insurance Corporation (FDIC). They are an independent government agency that provides protections for deposit account holders if an FDIC-insured bank should happen to fail. It’s not a common occurrence, but some banks can end up taking too much financial risk (bad loans, bad investments, etc.).

A bank is a business, and like any business, it can go under if poorly managed. Account holders would like to think their money is perfectly safe in a bank, and it usually is in most cases. It’s rare for a bank to completely collapse. The FDIC provides insurance to help cover customers if it does fail.

FDIC Insurance Coverage

Standard FDIC insurance protects and reimburses your deposits up to $250,000. It automatically covers checking accounts, savings accounts and other types of deposit accounts. However, the $250,000 limit applies per account holder—not for each account. Investment accounts are not covered. Here is a full list of which accounts are typically covered by FDIC insurance:

  • Checking accounts
  • Savings accounts
  • Money market deposit accounts
  • Cashier’s checks and money orders issued by an FDIC-insured bank
  • Negotiable order of withdrawal (NOW) accounts
  • CDs and other time deposits

The following investments/accounts are not covered by the FDIC:

  • Stock and bond investments
  • Life insurance policies
  • Crypto investments
  • Mutual funds
  • Annuities
  • Safe deposit boxes
  • Treasury notes, bonds or bills (not covered by FDIC, but still backed by the Treasury)

Recent cases like the failures of Signature Bank and Silicon Valley Bank have raised questions about FDIC insurance. Many customers of both banks were affected by the sudden collapses. The government has stepped in to try and supplement the basic FDIC insurance and provide additional compensation for depositors beyond the usual insurance limit. This is an uncommon situation, so don’t expect this to happen in every instance of a major bank collapse.

Is Your Bank FDIC-Insured?

Next time you open a bank account, you may want to look for the FDIC insurance. Most major American banks are FDIC-insured, and that at least provides some additional peace of mind as a customer.

For help with all your investments and wealth management strategies, contact Illumination Wealth to speak with one of our leading financial advisors.