The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government created in 1933 in response to the thousands of bank failures that occurred during the Great Depression. Its primary purpose is to maintain public confidence and stability in the financial system by insuring deposits at commercial banks and savings institutions. The FDIC guarantees the safety of deposits in member banks up to a standard limit, which is currently $250,000 per depositor, per insured bank, for each account ownership category. This means that even if a bank fails, depositors are protected from losing their insured funds.

Banks and savings institutions must apply for FDIC membership and meet specific regulatory and operational standards. Once accepted, they pay insurance premiums based on their total deposits and risk level. The FDIC uses these premiums to build the Deposit Insurance Fund (DIF), which is used to pay back depositors in the event of a bank failure. The fund is not taxpayer-funded; it is fully supported by the participating banks. In addition to providing insurance, the FDIC also regulates and supervises financial institutions for safety, soundness, and consumer protection.

When a bank fails, the FDIC acts quickly to resolve the situation, usually by either selling the failed bank's assets to another institution or creating a temporary bridge bank to manage operations. Depositors typically have uninterrupted access to their insured funds, often by the next business day, either through a transfer to another FDIC-insured bank or by receiving a check for their insured balance. Uninsured deposits (those exceeding the insurance limit) may be partially recovered through the sale of the failed bank's assets, though this is not guaranteed.

The FDIC also plays a proactive role in preventing bank failures by conducting regular examinations and stress tests to assess institutions' financial health. If weaknesses are identified, the agency works with banks to correct them before insolvency occurs. This preventative function is vital in minimizing risks to the broader financial system and reducing the need for costly interventions.

Coverage

The FDIC (Federal Deposit Insurance Corporation) covers up to $250,000 per depositor, per insured bank, for each account ownership category.  The limit applies to each individual or entity.  Coverage is separate for each FDIC-insured bank. If you have accounts at multiple FDIC-insured banks, each is separately insured up to the limit.  Different types of accounts (e.g., single accounts, joint accounts, retirement accounts, trust accounts) are insured separately, each up to $250,000 if the requirements are met.

To confirm your specific coverage, the FDIC provides a tool called EDIE (Electronic Deposit Insurance Estimator) that helps calculate your insured deposits.

There are strategies to get more than $250,000 in FDIC insurance coverage by using the rules around ownership categories and account structures. Here are the main strategies:

  1. Use Multiple Ownership Categories
    1. The $250,000 limit applies per ownership category, so you can increase your coverage by using different account types:
  2. Use Revocable Trust or Payable/Transfer On Death Accounts
    1. FDIC coverage can go beyond $250,000 depending on the number of unique beneficiaries.
    2. Each qualifying beneficiary adds $250,000 of coverage.
    3. A trust or POD account with 4 unique beneficiaries can be insured up to $1 million.
  3. Open accounts at multiple banks
    1. FDIC coverage applies per bank, so you can increase coverage by spreading your funds across different institutions.

FDIC coverage is a federal program, and the coverage rules and limits are the same nationwide.  The standard insurance amount is the same no matter where the bank is located.  It applies equally to accounts held in branches located in different states or online-only banks.  So, location doesn't affect your coverage, but which bank and how accounts are structured does.

Conclusion

Overall, the FDIC serves as a critical backstop for the U.S. banking system. Its insurance coverage reassures depositors that their money is safe, thereby discouraging panic-driven bank runs. In turn, this stability allows banks to focus on their primary functions, lending, investing, and facilitating commerce, while maintaining the public's trust in the integrity of the financial system.

Important Notes:

FDIC insurance does not cover investments like stocks, mutual funds, or annuities, even if purchased at an FDIC-insured bank.  Coverage limits are complex when dealing with trusts or multiple beneficiaries, so professional guidance or using the FDIC's EDIE tool is helpful for exact calculations.

Brian Stone
Director

Disclosures:

This is provided for informational purposes only and should not be interpreted in any way as investment, tax, accounting, legal or regulatory advice. An investor must take into consideration his/her individual circumstances. 

There is no guarantee investment strategies will be successful. Investing involves risks including possible loss of principal. There is always the risk that an investor may lose money. A long-term investment approach cannot guarantee a profit.  All expressions of opinion are subject to change. This article is distributed for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. Investors should talk to their wealth advisor prior to making any investment decision.