Whether selecting a traditional or online bank, it’s always wise to ensure that deposits are federally insured. Established in 1933, the Federal Deposit Insurance Corporation is an independent agency whose main goal is to promote confidence and stability in the nation’s banking system. With its development, consumers have been provided prompt access to their insured deposits in the event that an FDIC-insured bank or savings association fails.
Thanks to the FDIC no customer has ever lost a single penny of insured deposits in its 75-year history.
Whenever a bank client opens any type of deposit account at an FDIC-insured bank or savings association, the insurance is automatic. This coverage is extended to savings accounts, money market deposit accounts, and CDs. This coverage is provided to banks and savings association through premiums already paid by the insured banks as well interest earnings on investments in U.S. Treasury securities. No federal or state tax revenues are involved.
It’s important to be aware, however, that investments in stocks, mutual funds, life insurance policies, annuities, or municipal securities are not insured, even if they are purchased through an FDIC-insured institution.
Those who hold less than $250,000 in deposit accounts are fully covered. Dollar for dollar, FDIC insurance covers each depositor’s account balances, up to the insurance limit, including principal and accrued interest through the date of the insured bank’s closing.
How the FDIC works
In the event of a FDIC-insured bank closing, the FDIC has two roles. Its first role is to insure the bank’s deposits, paying insurance to the depositors up to the limit. As
“receiver” of the closed bank, the FDIC also assumes the task of selling or collecting the bank’s assets and settling its debts.
In the event of a closing, the FDIC sends out a notification immediately to the bank’s depositors. It also pays depositors within just a few days after the closing, typically the next business day. The FDIC provides protection by either issuing a check to each depositor for the insured portion of their accounts or facilitating a merger with another FDIC-insured institution.
For instance, a recent acquisition of a large financial institution by another was facilitated by the FDIC. As a result, all depositors were fully protected and there was no cost to the Deposit Insurance Fund. An FDIC spokesperson cited the seamless transition prevented any interruption in services for bank clients. In the acquisition, the receiving bank acquired the assets and assumed the qualified financial contracts.
To confirm that a brick-and-mortar or online bank is insured by the FDIC, take the time to read key information about the bank which will be included in its reading material or in the “About Us” section of the bank’s Web site. Look for the familiar FDIC logo or the words “Member FDIC” or “FDIC Insured.”
Individuals may also confirm a bank’s insurance coverage at the FDIC Web site by searching for a bank by name, city, state, or zip code. A positive match displays the official name of the bank, the date it became insured, the main office location for the bank, and its primary government regulator, to name a few.
Today, the FDIC insures deposits at the nation’s more than 8,400 banks and savings associations and promotes the safety and soundness of these institutions.
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