FDIC
TL;DR: FDIC covers 250k of cash at member banks.
I hope you read more than the TLDR – I’ll try to keep it short but there are important details!
I was recently asked by a friend to make a post going more in-depth on FDIC-insurance. It’s definitely not something everybody knows or is thinking about everyday. But it’s important! In the unlikely event of your bank failing, this is how you protect your assets! I recently was looking at this graph, I was surprised at how often smaller banks failed and FDIC was needed. Yikes at the peak around 2008 – we can hope it never happens again but be prepared!
A quick historical overview: The FDIC was made in 1933 in response to the Great Depression. They are an independent agency of the United States Government and would like you to know that since they were established, nobody has ever lost a penny in FDIC-insured assets.
How does it work? First of all, make sure your bank is a FDIC member bank. Most big banks are, but a quick Google search would tell you. Then, FDIC coverage is automatic once you set up an account with them. In the event of your bank failing, they will cover $250,000 per depositor, per FDIC-insured bank, per ownership category. For most people, you just need to know they’ve got you covered for $250k.
What is insured? Most things most people use at banks, including checking accounts, savings accounts, CDs, and money-market accounts. A full list can be found here.
Be careful! Stocks, bonds, and other related products are not insured, even if held with a member FDIC bank.
What actually happens in the event a bank fails? The FDIC usually will cover you up to the insured amount by either check or opening up a bank account at another FDIC member bank. Then over time the FDIC will settle debts/sell assets etc… of the failed bank and pay back the proceeds to those who had uninsured assets (getting “cents on the dollar”).
What if I have more than $250k and I want to be insured? Remember how I said 250k per depositor, per FDIC-insured bank, per ownership category? Basically the short answer is you could open up an account at another FDIC member bank and that will be insured separately. You can also have different ownership categories, such as a single account vs. joint accounts vs. certain retirement accounts, which will be covered separately. In the example of joint accounts, each co-owner of the joint account will be covered for $250k each as well. You can find information on the different types of accounts here.
What if I have so much money I can’t possibly have it all covered by all FDIC member banks? Sounds like a good problem to have. I dunno, you tell me?
I have more questions! You can visit the FDIC website or call 1-877-ASK-FDIC (1-877-275-3342).
What if I want my stocks/bonds to be covered? Unfortunately FDIC won’t do the trick. But SIPC might! Which we will talk about next week.
Happy FDIC’ing!
TheJKW
Disclaimer: this is just what I learned from skimming their website and is not guaranteed to be the most accurate/up to date. For the most accurate information please visit their site or call.