Earlier this year, news of the shutdown of Silicon Valley Bank and Signature Bank have sent shiver down the spines of U.S. depositors and investors, who feared they might create a chain reaction that would impact other parts of the financial market.
While swift actions by regulators have eventually prevented the damage from spreading, what happened might have caused you to rethink about questions such as whether the money in your bank account is safe? And how much money is protected in a bank account by the government?
To answer these questions, the below guide will walk you through what the Federal Deposit Insurance Corporation (FDIC) does. As a depositor, it is important for you to be familiar with concepts such as FDIC Insurance and its limits.
What is the Federal Deposit Insurance Corporation (FDIC) Coverage?
The FDIC is an independent agency created by the United States Congress to uphold stability and increase public confidence in the financial system. One of its key functions is to provide deposit insurance, backed by the full faith and credit of the U.S. government, as an important safeguard for depositors in the event that an FDIC-insured bank or savings associations fails.
Once you open a deposit account with an FDIC-insured bank, your account will be insured automatically. There is no need for you to purchase FDIC insurance on an individual level.
Currently, the FDIC sets the deposit insurance limit at $250,000 per depositor, per FDIC-insured bank, per ownership category. Interest accrued through the date of default will also be covered as long as the total balance in your account does not exceed the FDIC limit.
Are All Banks FDIC Insured?
To find out if your bank is insured, the easiest way is to ask your relationship manager or a bank representative directly. Alternatively, you may check if your bank has the FDIC sign or use the FDIC's BankFind tool.
You can also access other information about your bank through BankFind, such as branch locations, the current operating status, and the regulator information.
Are All Your Money Insured by FDIC Insurance?
This depends on the type of financial products you are holding in your account. The FDIC protection only applies to deposit accounts, including checking accounts, savings accounts, money market deposit accounts, certificates of deposit and prepaid cards that meet certain FDIC requirements.
It is important to note that non-deposit investment products, even if purchased from an FDIC-insured bank, are not covered by FDIC insurance. These include stock and bond investments, mutual funds, treasury bills, annuities, and life insurance coverage, among others.
The Electronic Deposit Insurance Estimator (EDIE) helps you calculate how much of your bank deposits are covered by FDIC deposit insurance and what portion of your funds (if any) exceeds the coverage limits.
How to Find Out if Your Account is Fully Covered?
FDIC provides details about your FDIC insurance coverage through its Electronic Deposit Insurance Estimator(EDIE). Simply enter your account information to find out the latest status.
You can also visit the FDIC Information and Support Center to submit a request for deposit insurance coverage information or reach out to the FDIC at 1-877-ASK-FDIC (1-877-275-3342).
Can You Have More Than $250,000 Insured?
The answer is yes, there are strategies you can employ to increase your overall coverage.
One simple way is to spread your deposits across multiple FDIC-insured banks, so each of your account is insured up to $250,000.
The other way is to diversify your money into different types of accounts, such as joint accounts, single accounts, trust accounts and retirement accounts. This is because FDIC insures deposits according to the account ownership category. For example, if you have two deposits held in joint savings account and your single account, both deposits will be separately insured even if held at the same bank.
You may also consider moving some of your money to a credit union. Unlike traditional banks, credit unions often prioritise providing competitive interest rate or lower fees. Though they are not insured by the FDIC, they are insured the National Credit Union Share Insurance Fund (NCUSIF), similar to the FDIC insurance for banks.
The fund will provide insurance coverage for credit unions should any member fail, and the insurance limit for single accounts at federally insured credit unions is also $250,000.
What Happens if Your Bank Fails?
Now that we've walked you through the FDIC insurance, you should know that your deposits in your bank account are safe as long as the balance remains below the insurance limit.
In the unfortunate event of a bank failure, the FDIC will step in. Their primary objective is to find another bank willing to acquire the failed bank and assume its assets and liabilities. In such a scenario, your insured deposits will be transferred to the acquiring bank, and the FDIC will provide updates regarding the transition process. If no bank is willing to acquire the failed institution, the FDIC will return your insured deposit to you.
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