Understanding FDIC Insurance
In these uncertain economic times, many Americans are doing everything they can to protect their savings and financial security. However, if your money is in an institution that is protected by the Federal Deposit Insurance Corporation (FDIC), there is a good chance your money is already safe.
The FDIC is an agency of the federal government charged with protecting deposits in American banks and savings associations, even if those institutions fail. The FDIC was created in 1933 in order to calm fears of "runs on banks," a phenomenon perhaps best represented by the scenes at the "Bailey Building and Loan" in Frank Capra's It's a Wonderful Life. This insurance is automatic. You don't have to do anything other than deposit your money. What this means is that if you deposit a qualified amount of money at a qualified institution into a qualified account, your money will be insured by the FDIC and its safety guaranteed by the federa1 government. But what do all of these "qualifieds" mean?
First, FDIC insurance doesn't apply to all the money you can possibly deposit. There are limits. Currently, the key amount is $250,000 or less. (Although this cap is currently set to be lowered to $100,000 by the end of 2009.) This means that for a single account (with one owner), the FDIC will protect the first $250,000 deposited. For joint accounts (those with two or more owners), the FDIC will protect up to the first $250,000 deposited per owner. This same cap applies to Individual Retirement Accounts (IRAs).
You are certainly free to deposit more than $250,000 with a single institution, but, unless that money is spread over different types of accounts (i.e., $50,000 in a single account and $220,000 in an IRA), anything above the cap will not be protected. The FDIC offers an Electronic Deposit Insurance Estimator (EDIE) on its Web site (www.fdic.gov); this tool allows depositors to determine whether their accounts are covered and, if so, up to how much.
What does it mean to make your deposit with a "qualified" institution? The FDIC covers most - but not all- banks and savings associations. In order for an institution to gain FDIC insurance, it must meet certain requirements. You can tell if a bank or savings association is covered by the FDIC by looking for the FDIC "seal" at the institution or by going onto the FDIC's Web site and using its "Bank Find" application. You can also find out by calling the FDIC directly at 1-877-ASK-FDIC. If the institution is insured, all of its qualified accounts (within the cap) will be insured.
And lastly, we must define what "qualified" accounts are. Traditional savings, money market deposits, and most retirement accounts are qualified. However, investment products such as stocks, bonds, mutual funds, and life insurance policies are not covered, even if they are purchased from institutions that are covered. The FDIC's online EDIE can help you determine whether your money is in an account that is "qualified."
Although these federal protections can't stop you from making bad investments, they should provide you with a peace of mind regarding the savings you keep in banks and saving institutions. If you think that a bank has misused your savings or possibly committed fraud, contact the FDIC's Consumer Response Center (1-877-ASK-FDIC or consumeralerts@fdic.gov) and your attorney to identify the appropriate corrective steps.