Definition
The Federal Deposit Insurance Corporation (FDIC) is a U.S. government agency established in 1933 in response to the thousands of bank failures that occurred in the late 1920s and early 1930s. The FDIC insures deposits at banks and savings institutions, covering all deposit accounts, including checking, savings, money market deposit accounts, and certificates of deposit (CDs) up to a set limit. This limit is currently $250,000 per depositor, per insured bank, for each category of account ownership.
Examples
- Bank of America Depositor: A depositor at Bank of America has $200,000 in a savings account. If the bank were to fail, the FDIC would insure the full $200,000, preventing any loss to the depositor.
- Wells Fargo Joint Account: A husband and wife have a joint account with a balance of $400,000 at Wells Fargo. Since this is a joint account, the FDIC insures up to $500,000 ($250,000 per depositor), fully covering the deposit.
- Different Account Types: An individual with a $250,000 checking account and a $250,000 CD at the same bank has both accounts insured separately, covering $500,000 in total.
Frequently Asked Questions (FAQ)
What does the FDIC insure?
The FDIC insures all deposit accounts at insured banks, including checking and savings accounts, money market deposit accounts, and certificates of deposit (CDs).
How much does the FDIC insure?
The FDIC insures up to $250,000 per depositor, per insured bank, for each category of account ownership.
What types of accounts are not insured by the FDIC?
The FDIC does not insure investments in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if purchased at an insured bank.
How can I find out if my bank is FDIC insured?
You can check if your bank is FDIC insured by using the FDIC’s “BankFind” tool available on the FDIC website or by looking for the FDIC sign at your bank branch.
What happens if my bank fails?
If an FDIC-insured bank fails, the FDIC steps in to protect depositors by either transferring their insured deposits to another insured bank or by providing a check for the insured balance.
Related Terms with Definitions
- Deposit Insurance: Protection provided, typically by a government agency, to depositors against losses that occur when a bank or financial institution fails.
- Commercial Bank: A financial institution that accepts deposits, offers checking account services, and makes various loans.
- Savings Institution: A financial institution that accepts savings deposits and primarily invests the money in mortgage loans.
- Certificate of Deposit (CD): A savings certificate with a fixed maturity date and specified fixed interest rate.
Online Resources
- FDIC Official Site - Official site providing detailed information on deposit insurance.
- EDIE - FDIC’s Electronic Deposit Insurance Estimator - Tool to estimate your insurance coverage.
- FDIC BankFind - Tool to search for FDIC-insured banks.
References
- Federal Deposit Insurance Corporation. (2023). FDIC Website.
- Investopedia. (2023). Federal Deposit Insurance Corporation (FDIC).
Suggested Books for Further Studies
- “The Banker’s Handbook on FDIC Banking Regulations” by James P. Thompson
- “Federal Deposit Insurance and Public Policy” by Andrew H. Chen and Peter Moles'
- “Banking Regulations in the United States” by Melanie L. Fein
Real Estate Basics: Federal Deposit Insurance Corporation (FDIC) Fundamentals Quiz
### What does the FDIC insure?
- [x] Deposit accounts such as checking and savings accounts
- [ ] Investment accounts like stocks and bonds
- [ ] Life insurance policies
- [ ] Personal loans
> **Explanation:** The FDIC insures deposit accounts such as checking and savings accounts, money market deposit accounts, and CDs.
### What is the insurance limit provided by the FDIC?
- [ ] $100,000 per depositor
- [ ] $500,000 per depositor
- [x] $250,000 per depositor, per insured bank
- [ ] $1,000,000 per depositor
> **Explanation:** The FDIC insures deposits up to $250,000 per depositor, per insured bank, for each category of account ownership.
### When was the FDIC established?
- [ ] 1929
- [x] 1933
- [ ] 2001
- [ ] 1913
> **Explanation:** The FDIC was established in 1933 in response to the bank failures during the Great Depression.
### Which of the following is NOT insured by the FDIC?
- [ ] Checking accounts
- [ ] Savings accounts
- [ ] Certificates of deposit (CDs)
- [x] Mutual funds
> **Explanation:** The FDIC does not insure investments in mutual funds, stocks, bonds, or life insurance policies.
### What happens if an FDIC-insured bank fails?
- [ ] Depositors lose all their money
- [ ] The government will bail out the bank regardless of the amount
- [x] The FDIC steps in to protect depositors
- [ ] The bank’s board of directors repays depositors
> **Explanation:** If an FDIC-insured bank fails, the FDIC protects depositors either by transferring accounts to another insured bank or providing checks for the insured balance.
### How do I check if my bank is FDIC insured?
- [ ] Trust your bank's advertising
- [x] Use the FDIC's "BankFind" tool
- [ ] Ask other customers
- [ ] It is compulsory that all banks are FDIC insured
> **Explanation:** You can verify if your bank is FDIC insured through the FDIC's "BankFind" tool or by spotting the FDIC sign in the bank branch.
### What accounts beyond $250,000 are fully safe in an FDIC insured bank?
- [ ] All accounts regardless of amount
- [x] Separate accounts for different categories of ownership
- [ ] Joint accounts alone
- [ ] There is no guarantee beyond $250,000
> **Explanation:** Accounts held in separate categories will each be insured up to the $250,000 limit; for example, individual accounts and joint accounts have separate insurance limits.
### How does the FDIC assess premiums from banks?
- [ ] It collects a monthly inventory fee
- [ ] Based on the quality of coffee served
- [x] Premiums are charged based on the bank's level of deposits
- [ ] Premiums are randomized each year
> **Explanation:** The FDIC charges premiums based on the level of deposits held by the bank to fund the insurance protection for depositors.
### What role did the FDIC play during the 2008 financial crisis?
- [ ] Repossessed homes
- [ ] Increased stock prices
- [ ] Provided free banking services
- [x] Stepped in to manage failing banks and protect depositors
> **Explanation:** During the 2008 financial crisis, the FDIC played a crucial role in managing failing banks and ensuring that depositors did not lose their insured funds.
### Are business accounts insured by the FDIC?
- [ ] No, only personal accounts are insured
- [x] Yes, business deposit accounts are insured similarly to personal accounts
- [ ] Only if they are under $50,000
- [ ] Only in non-profit organizations
> **Explanation:** Business deposit accounts are insured by the FDIC up to $250,000, identical to personal deposit accounts.
