Definition / Meaning of FDIC insurance
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government that protects depositors against the loss of their deposits if an FDIC-insured bank or savings association fails. FDIC insurance is backed by the full faith and credit of the U.S. government, meaning that even if a bank goes bankrupt, depositors will get their money back up to the insurance limits.
Since its creation in 1933 during the Great Depression, the FDIC has maintained public confidence in the banking system by insuring deposits. Today, virtually all banks offer FDIC insurance, and most depositors are fully covered because the standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.
How FDIC Insurance Works
When you open a savings account, checking account, or certificate of deposit (CD) at an FDIC-insured bank, your money is automatically insured—you don’t need to apply or pay for it. The FDIC maintains a Deposit Insurance Fund (DIF) that is funded by premiums paid by member banks. When a bank fails, the FDIC uses this fund to reimburse depositors, usually within a few business days.
The coverage limit applies per depositor, per bank, not per account. This means that if you have multiple accounts at the same bank (e.g., a checking account, savings account, and a CD), the total of all your deposits at that bank is insured up to $250,000. However, you can increase your coverage by having accounts in different ownership categories, such as single accounts, joint accounts, revocable trust accounts, and certain retirement accounts. For example, a married couple with a joint account could be insured for up to $500,000 (because each of the two owners has $250,000 of coverage).
What Is Covered and What Is Not
FDIC insurance covers all types of deposits held at an insured bank, including:
- Checking accounts
- Savings accounts
- Money market deposit accounts
- Certificates of deposit (CDs)
- Cashier’s checks, money orders, and other official items issued by the bank
However, FDIC insurance does not cover non-deposit investment products, such as:
- Stocks, bonds, or mutual funds
- Life insurance policies
- Annuities
- Cryptocurrency
- Safe deposit boxes or their contents
If you own these investments through a bank, they are not FDIC-insured and may lose value.
Insurance Limits and Coverage Categories
The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. The main categories include:
| Ownership Category | Coverage Limit |
|---|---|
| Single accounts (owned by one person) | $250,000 per owner |
| Joint accounts (two or more people) | $250,000 per co-owner |
| Revocable trust accounts (payable on death) | $250,000 per beneficiary |
| Certain retirement accounts (e.g., IRAs) | $250,000 per owner |
| Corporation, partnership, and unincorporated association accounts | $250,000 per entity |
By combining different ownership categories, a family can often insure much more than $250,000 at one bank. For example, a couple with a joint account, two individual accounts, and trust accounts could have coverage exceeding $1 million.
FDIC vs. NCUA Insurance
Credit unions are insured by the National Credit Union Administration (NCUA) under similar rules. NCUA insurance also provides up to $250,000 per member, per credit union, per ownership category. The main difference is the regulator: banks are FDIC-insured, while credit unions are NCUA-insured.
If you have deposits at both a bank and a credit union, the limits are separate, so you can double your total coverage.
What Happens When a Bank Fails?
When a bank is closed by its chartering authority, the FDIC typically steps in and pays depositors within a few days. In most cases, depositors do not lose a penny of insured funds. The FDIC may also arrange for another bank to assume the failed bank’s deposits and accounts, making the transition seamless for customers.
Since 1933, no depositor has lost a single cent of insured funds in an FDIC-insured bank.