Understanding FDIC Insurance to Keep Your Cash and CDs Secure

Money invested in savings accounts, checking accounts and certificates of deposit (CDs) represents the safe portion of your portfolio.  This money is commonly used for short to medium term expenses, 5 to 7 years or less, and emergencies.  Safety takes priority over the rate of return on this part of your portfolio.  Keep your principal secure by placing with an FDIC insured institution.

Federal Deposit Insurance Corporation (FDIC) insurance provides consumers with confidence to keep their money in FDIC insured banks and it is backed by the full faith and credit of the United States Government.  To be covered by FDIC insurance you must place your money in a product that is covered by the FDIC in a bank that is insured by the FDIC.  FDIC deposit insurance covers checking, savings, money market and Negotiable Order of Withdrawal (NOW) accounts as well as CD’s, cashier’s checks and money orders.  It does not cover stocks, bonds, mutual funds, life insurance, annuities, municipal securities, U.S. Treasury bills, bond and notes or the contents of safe deposit boxes.

The FDIC is an independent agency of the United States that was established on June 16, 1933 when President Franklin D. Roosevelt signed the Banking Act of 1933 (Glass-Steagall Act).   According to the FDIC, the agency was created to raise the public’s confidence in the banking system by alleviating the disruptions caused by bank failures.  Between 1930 and 1933 depositors lost about $1.3 billion – around $24.5 billion in today’s dollars due to bank failures.

To determine if your bank is insured by the FDIC you can look for the FDIC sign or ask your bank representative.  To verify that a bank is FDIC insured call the FDIC at 877-275-3342 or use the FDIC’s online BankFind tool at www.fdic.gov/bankfind/.  If you see an offer for a CD that is paying an unusually high interest rate, verify that that the bank is FDIC insured before handing over your money.

FDIC insurance is automatic when you open a deposit account at an FDIC insured bank.  The standard insurance amount for FDIC insurance is $250,000 per depositor, per insured bank, for each ownership category.  Some typical ownership categories include the following account types; individual, joint, certain retirement accounts (including IRAs), Revocable and Irrevocable Trusts, Corporate and partnership accounts, employee benefit plan and government accounts.  For example, if you have an individual account, an IRA account and a revocable trust account, the FDIC can insure up to $250,000 in each account for a total of $750,000.  Individual accounts are insured up to $250,000 but in joint accounts each co-owner receives $250,000 in insurance for each account.

If a bank fails, the FDIC pays insurance to the depositors up to the insurance limit.   Historically the FDIC pays insurance within a few days of the bank closure.  No depositor has lost money insured by the FDIC since the agency was formed in 1933.