FDIC Insured Account Definition, Requirements, Pros/Cons

What Is an FDIC Insured Account?

• An FDIC insured account is a bank or thrift account covered by the Federal Deposit Insurance Corporation (FDIC).
• The FDIC is an independent federal agency safeguarding customer deposits in case of bank failures.
• Maximum insurable amount: $250,000 per depositor, per FDIC-insured bank, and per ownership category.

Key Takeaways

• FDIC insured accounts protect deposits against bank failure or theft.
• Member banks fund FDIC through regular premiums.
• Maximum insurable amount is currently $250,000 per depositor, per bank.

Understanding an FDIC Insured Account

• FDIC reimburses up to $250,000 in case of bank failure.
• Depositors with more than $250,000 need to spread funds across multiple FDIC-insured banks.
• Banks use fractional reserve banking, retaining only 10% of deposits, which can lead to bank runs if many withdraw at once.

FDIC Insured Account Requirements

• FDIC steps in when an insured bank fails, covering deposits up to $250,000.
• Participating banks must display FDIC membership signs.
• FDIC membership is voluntary and funded by bank premiums.
• Types of FDIC-insured accounts include checking, savings, money market, and CD accounts.
• Accounts not covered: safe deposit boxes, investment accounts, and mutual funds.

Examples of FDIC Insured Accounts

• FDIC covers deposits up to $250,000 per account per person.
• Joint accounts offer $250,000 protection per co-owner.
• Separate limits apply for different banks, allowing full coverage across multiple banks.

History of FDIC Insured Accounts

• Created post-1929 Stock Market Crash and Great Depression to prevent future banking panics.
• FDIC insures bank demand deposits up to set amounts, increased to $250,000 in 2008.
• Initially funded by BIF and SAIF, merged into Deposit Insurance Fund in 2005.

Special Considerations

• FDIC reserve fund often underfunded but can borrow up to $500 billion from the Treasury.
• During 1991 S&L crisis, FDIC borrowed to cover thrift accounts.

Advantages and Disadvantages of FDIC Insured Accounts

• No depositor has lost insured funds since 1934 due to FDIC coverage.
• Critics argue FDIC insurance encourages riskier behavior by depositors and banks.

Why Is it Important to Choose a Bank Account That Is FDIC-Insured?

• Ensures up to $250,000 ($500,000 for joint accounts) in event of bank failure.

What Are 3 Things not Insured by FDIC?

• Stocks, bonds, and mutual funds are not insured.
• Other exclusions: life insurance policies, annuities, municipal securities, safe deposit boxes, U.S. Treasury bills, crypto assets.

Is it Good to Have all Your Money in One Bank?

• Safe but risky if balances exceed FDIC limits; recommend diversifying across multiple banks.

The Bottom Line

• Bank failures can occur, but FDIC insurance provides peace of mind by covering deposits.
• From 2001-2022, 561 banks failed, highlighting importance of FDIC-insured accounts.