What is the FDIC?

/ BY / Personal Finance

Have you ever noticed the words “FDIC insured” on a bank advertisement? What kind of protection do those words promise?

The FDIC is the Federal Deposit Insurance Corporation, an independent government agency that was set up during the Great Depression of the 1930s. It offers protection to people who deposit their money in certain types of bank accounts; depositors have the assurance that they’ll be able to withdraw their money (up to a certain amount) even if the bank runs into some kind of financial difficulty.

What is the purpose of the FDIC today?

According to its website, the FDIC preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for at least $250,000; by identifying, monitoring and addressing risks to the deposit insurance funds; and by limiting the effect on the economy and the financial system when a bank or thrift institution fails.

Are all bank accounts backed by FDIC insurance?

No. First of all, banks are not required to be FDIC insured, although almost all are, just to remain competitive.

Second, if you keep your money in a credit union, that money is not insured by the FDIC.  (Credit unions are usually insured either by the National Credit Union Administration, another federal government agency, or in some states by a state agency.)

Finally, only certain types of accounts are insured by the FDIC. They include:

  • Checking
  • Savings
  • Certificates of Deposit
  • Money market deposit accounts (under certain conditions)

Accounts that may be offered by a bank but are NOT insured by the FDIC include:

  • Mutual funds
  • Annuities
  • Stocks
  • Bonds
  • Life insurance

Am I insured for $250,000 for each account in my bank?

No. If you’re an individual account holder, you’re insured for a total of $250,000 for all your deposits in one bank. If you hold joint accounts, each joint account holder is insured for a total of $250,000 for all deposits.

Suppose Mr. Smith has a checking account with $50,000 and a savings account with $250,000 in the same bank. If the bank were to get into financial difficulties, Mr. Smith would be insured only for $250,000; he could lose the additional $50,000.

If Mr. Smith and his wife hold the accounts jointly, however, each would receive $250,000 in protection from FDIC, for a total of $500,000 in insured accounts.

If you’re not sure of the status of your accounts, the FDIC has an Electronic Deposit Insurance Estimator that will calculate how much insurance you have on your accounts in a bank.

What if I have accounts in more than one bank?

The FDIC treats accounts in each bank separately, so you’ll receive $250,000 in insurance protection in Bank A, another $250,000 from Bank B, etc.

Does the FDIC have anything to do with my credit score?

No. You may be thinking of FICO, which is a private company that provides computer software for computing credit scores. FICO stands for Fair Isaac Corporation.

Can the FDIC offer me any assistance when I’m applying for a credit card?

The FDIC isn’t involved in issuing credit cards, but it does have an interest in educating consumers about financial matters. That includes providing information about applying for credit cards, using and managing credit cards. Check out the FDIC Consumer News section on the agency’s website for many articles on credit and credit cards.

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