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- The FDIC is a government agency that insures deposits so you don't lose money if your bank fails.
- You don't need to apply or pay for FDIC insurance, your money is insured automatically.
- The FDIC insures accounts for up to $250,000 per depositor, per institution, per ownership category.
On many banks' websites, you'll likely see a logo with the term "Member FDIC" near the bottom of the main page. If your institution is FDIC-insured, then all or most of your money should be safe.
The FDIC has been in the news lately after the collapse of Silicon Valley Bank in the biggest bank failure since the financial crisis.
Here's how FDIC insurance works and everything you need to know.
What is FDIC insurance?
The Federal Deposit Insurance Corporation, or FDIC, is a federal government agency that provides insurance to banks. If an insured bank fails, then you won't lose the money you keep at that institution.
FDIC insurance works similarly to other types of insurance. If you have renters insurance and your home is damaged in a natural disaster, your insurance will cover the costs of damages up to a certain dollar amount. If your bank has FDIC insurance and shuts down, the FDIC will give you the money you stored in the account up to a certain dollar amount.
As with any insurance, you hope you'll never have to use your FDIC insurance. It only kicks in if your bank fails and closes.
Why is FDIC insurance important?
Why is FDIC insurance necessary in the first place? Couldn't you just withdraw all your money if your bank is closing?
Large banks actually only keep about 10% of deposits in reserve, and small banks hold onto even less. They use the rest of the members' deposits to provide loans so they can earn money from interest paid on those loans.
If your bank closes, the bank couldn't give everyone their money at once — they simply don't have the funds on hand. Because you can't access all your money immediately, the FDIC gives you the money later.
How to get FDIC insurance
You don't have to apply for or pay for FDIC insurance. If you open an account with an FDIC-insured bank, you are automatically insured.
Before banking with an institution, make sure the bank is insured by the FDIC. You should be able to find this information on the bank's website, or you can check on the FDIC BankFind page.
What FDIC insurance covers
The FDIC insures deposit accounts. The following deposit accounts are covered by FDIC insurance:
The agency doesn't cover any money you lose in investment accounts. If you would like to open a brokerage account, you can see if it is insured by the Securities Investor Protection Corporation (SIPC). SIPC insurance works similarly to FDIC insurance. If a brokerage shut down, your money will be returned to you. Up to $500,000 per account holder is protected in an account.
What is the FDIC insurance limit?
The FDIC typically insures up to $250,000 per depositor, per banking institution, per ownership category. That sounds complicated, so let's look at what that means.
First, let's get clear on ownership categories. An individual account is in one ownership category, and a joint account is in another ownership category (you can see the full list of categories here). Let's say you have both. In your individual account, you're insured for $250,000. In your joint account, each person is insured for $250,000, coming to $500,000 total. If your bank closed down, you could receive a total of up to $750,000.
However, here's an example in which all of your savings are in the same ownership category: If you have $250,000 or less in a combination of a CD, checking account, savings account, and money market account with your bank and the institution goes under, you will receive all your money from the FDIC. If you have, say, $300,000 in all of those accounts combined, you'll receive $250,000 back and lose $50,000.
What will the FDIC do if your bank closes?
If your bank fails, the FDIC will look into selling the institution's assets to a successful bank. In this case, you'd keep your money at a different bank.
If no bank wants to take on the assets, the FDIC would mail you a check for the amount of your insured deposits, usually within a few days.