FDIC Insurance on Deposits Provide Peace of Mind

April 16, 2020

FDIC insurance on deposits is something we can count on during a crisis. Find out if your institution is an FDIC member, and if your assets are covered.

Photo of the FDIC seal. FDIC insurance on deposit covers up to $250,000 per depositor per FDIC member institution.

As we do our best to continue on with our lives during the coronavirus crisis, we are constantly trying to combat fears and worries.  One such worry, which is a big one, is the concern we have for our income.  If we are among the fortunate to be earning an income, then we worry about guarding our assets.  On one hand, we focus on paying our basic bills to keep our homes, vehicles, and businesses.  On the other hand, some people have concerns about simply protecting what they keep in the bank.  Therefore, that’s why it is a good idea for us to go over FDIC insurance on deposits.

So, whether or not you are someone who keeps large sums of money in the bank, here is what you need to know about FDIC insured deposits.  Hopefully this information will give you a little peace of mind. At least that would be one less thing to worry about during this troublesome time.

Photo of a dollar bill sticking up out of the dirt.

Coffee Can in the Back Yard

It may sound laughable, but many of us know people who honestly believe the best way to keep their money safe is to stick the cash in a coffee can and bury it in the backyard.  Contrary to what one might assume, some of the people who feel this way are actually very intelligent people.  One such person was a friend’s grandmother.  After her husband passed away, she found out she was inheriting millions.  Despite the fact that her husband was a banker, rumor has it she kept tens of thousands of dollars in cash in the freezer following his death.  No one ever told me why she did this.  However, I’m guessing her husband never told her about FDIC insurance on deposits, kind of like how he didn’t tell her he was a millionaire.

So, why would people choose to forgo keeping their money in a bank account?  After all, having a bank accounts means having the ability to write checks, use a debit card, and receive direct deposit.  That’s just the tip of the ice burg, too!  Well, a big factor contributing to people bypassing the bank is simply their mistrust of banks.  Some people think the bank will either take their money, or not make it available when they need it.   Therefore, they choose to keep their money close by, but hidden, for safety and immediate access.

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FDIC Insurance on Deposits to Protect Your Money

As the economy becomes increasingly unpredictable, you might pick up a shovel to follow suit and start digging a hole in your backyard.  However you need to know how banks promise to protect you, so that you will keep your faith in them, even as times get tough.

While many people have heard the acronym FDIC, it’s likely that many people don’t actually know what it stands for.  The FDIC is the Federal Deposit Insurance Corporation, and it has been around since 1933.  As an independent federal agency, the FDIC boasts never having lost a penny of insured funds since their inception. The purpose of the FDIC is exactly what the name implies—to insure funds deposited into banks.  Their hope is that through doing so, it will “maintain public confidence and encourage stability in the financial system.”  So, for people who bury their cash in the backyard, this should be a point to consider.

How to Know If Funds are FDIC Insured

Now, unfortunately FDIC insurance does not extend to all deposits everywhere.  In fact, there is criteria that deposits need to meet in order to be covered by FDIC insurance.

Is my bank insured?

First, don’t assume your banking institution is FDIC insured.  Although most institutions offer FDIC coverage nowadays, it’s not a guarantee.  Specifically, institutions need to be FDIC members in order to reap the benefits.  You can find out if your institution is a member of the FDIC simply by asking, or looking for the words “Member FDIC” on the website or in the physical branch.

Are all my funds covered?

Image of a word cloud with FDIC in the center.
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Second, there is a limit to the amount of funds that is covered by FDIC insurance.  As of 2018, that number is $250,000 per depositor per banking institution.  So, if you have $250,000 at one FDIC-insured institution, and the same at another, then the FDIC covers the entire $500,000.  This is why you will hear of financial advisors encouraging depositors to divide their assets among FDIC insured institutions.  In other words, don’t put all your eggs in one basket.

Which types of accounts are covered?

Third, the FDIC covers more than just checking accounts.  So, if you also have saving accounts, CDs, money market accounts, IRAs, trust accounts, or employee benefit plans, know that they are also covered.

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Which types of accounts are not covered?

Finally, don’t assume that all types of accounts are covered by FDIC insurance.  While the FDIC insures the aforementioned types of accounts, they don’t protect mutual funds, annuities, life insurance policies, stocks, or bonds.

In case you are unsure about asset coverage, you can use the Electronic Deposit Insurance Estimator, which is available on the FDIC website.

It’s a Wonderful Life with FDIC Insurance on Deposits

If are wondering why this topic strikes a chord with you and seems somehow familiar, it probably isn’t because you’ve actually lived through people running on the bank and demanding withdrawals.  It might be, however, that you saw the scene unfold in the movie It’s a Wonderful Life.  In this classic film, set during the Great Depression, George Bailey is about to leave on his honeymoon.  As he drives through town, he sees a crowd of people lined up outside the Bailey Building and Loan, a family owned and operated company.  His conscience prompts him to action. In the end, Bailey uses his honeymoon funds to extend cash to those seeking to drain and close their bank accounts.

If nothing else, you can think of the FDIC as a corporate representation of George Bailey.  George wanted nothing more than for hardworking people to trust in the system.  So, he did what he had to in order to earn their trust.  Hopefully this sheds a little light on the purpose of FDIC Insurance on deposits, so that you, too, will keep your faith in the system.

Photo of George Bailey passing out cash at the Bailey Building and Loan in the movie It's a Wonderful Life.

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