Federal Deposit Insurance Corporation (FDIC)

What Is the Federal Deposit Insurance Corporation (FDIC)?

The Federal Deposit Insurance Corporation (FDIC) is an independent federal agency insuring deposits in U.S. banks and thrifts in the event of bank failures. The FDIC was created in 1933 to maintain public confidence and encourage stability in the financial system through the promotion of sound banking practices. As of 2020, the FDIC insures deposits up to $250,000 per depositor as long as the institution is a member firm. It is critical for consumers to confirm if their institution is FDIC insured.

The primary purpose of the FDIC is to prevent "run on the bank" scenarios, which devastated many banks during the Great Depression. For example, with the threat of the closure of a bank, small groups of worried customers rushed to withdraw their money.

After fears spread, a stampede of customers, seeking to do the same, ultimately resulted in banks being unable to support withdrawal requests. Those who were first to withdraw their money from a troubled bank would benefit, whereas those who waited risked losing their savings overnight. Before the FDIC, there was no guarantee for the safety of deposits beyond the confidence in the bank's stability.

Understanding the FDIC

Because practically all banks and thrifts now offer FDIC coverage, many consumers face less uncertainty regarding their deposits. As a result, banks have a better opportunity to address problems under controlled circumstances without triggering a run on the bank.

In case of bank failure, the FDIC covers deposits up to $250,000, per FDIC-insured bank, for each account ownership category such as retirement accounts and trusts. This sum is adequate for the majority of depositors, though depositors with more than that sum should spread their assets among multiple banks.

Example 1:

If you have $200,000 in a savings account and $100,000 in a certificate of deposit (CD), you have $50,000 uninsured.

Example 2:

If a couple has $500,000 in a joint account, as well as $250,000 in an eligible retirement account, the entire $750,000 would be covered by the FDIC, as each co-owner's share in the joint account is covered, and the retirement account is a different account category.

The FDIC provides a helpful interactive tool to check whether assets are covered.

If you have more than $250,000 deposited in an account type with a single bank, you may need to spread your assets among multiple banks to ensure you are fully covered by the FDIC.

What the FDIC Covers

Checking accounts, savings accounts, CDs, and money market accounts are generally 100% covered by the FDIC. Coverage extends to individual retirement accounts (IRAs), but only the parts that fit the type of accounts listed previously. Joint accounts, revocable and irrevocable trust accounts, and employee benefit plans are covered, as are corporate, partnership, and unincorporated association accounts.

FDIC insurance does not cover products such as mutual funds, annuities, life insurance policies, stocks, or bonds. The contents of safe-deposit boxes are also not included in FDIC coverage. Cashier's checks and money orders issued by the failed bank remain fully covered by the FDIC. 

Eligible business accounts from a corporation, partnership, LLC, or unincorporated organization at a bank are also FDIC-covered.

Filing a Claim

A customer can file a claim with the FDIC as early as the day after a bank or thrift folds. The request can be submitted online through the FDIC website. By calling 877-275-3342 (1-877-ASKFDIC), bank customers can receive personalized assistance at no cost.

Note that the FDIC only insures against bank failures. Instances of fraud, theft, and similar loss are handled directly by the institution. The FDIC has no jurisdiction over identity theft.

Special Considerations

While banks are covered by the FDIC, deposits into credit unions are backstopped by the National Credit Union Share Insurance Fund (NCUSIF). And as of 1981, the state of Massachusetts has had its own insurer for state-chartered savings banks, the Depositors Insurance Fund (DIF), which insures any deposits that exceed the FDIC limit.