Words for the Week #6
FDIC - Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation (FDIC) is an independent federal agency insuring deposits in U.S. banks and thrifts in the event of bank failures. The FDIC was createdin 1933 to maintain public confidence and encourage stability in the financial system through the promotion of sound banking practices. As of 2020, the FDIC insures deposits up to $250,000 per depositor as long as the institution is a member firm. It is critical for consumers to confirm if their institution is FDIC insured.
UNDERSTANDING THE FDIC
Because practically all banks and thrifts now offer FDIC coverage, many consumers face less uncertainty regarding their deposits. As a result, banks have a better opportunity to address problems under controlled circumstances without triggering a run on the bank.
In case of bank failure, the FDIC covers deposits up to $250,000, per FDIC-insured bank, for each account ownership category such as retirement accounts and trusts. This sum is adequate for the majority of depositors, though depositors with more than that sum should spread their assets among multiple banks.
Example 1:
If you have $200,000 in a savings account and $100,000 in a Certificate of Deposit (CD), you have $50,000 uninsured.
Example 2:
If a couple has $500,000 in a joint account, as well as $250,000 in an eligible retirement account, the entire $750,000 would be covered by the FDIC, as each co-owner's share in the joint account is covered, and the retirement account is a different account category.
The FDIC provides a helpful interactive tool to check whether assets are covered.
What the FDIC Covers
Checking accounts, savings accounts, CDs, and money market accounts are generally 100% covered by the FDIC. Coverage extends to individual retirement accounts (IRAs), but only the parts that fit the type of accounts listed previously. Joint accounts, revocable and irrevocable trust accounts, and employee benefit plans are covered, as are corporate, partnership, and unincorporated association accounts.
FDIC insurance does not cover products such as mutual funds, annuities, life insurance policies, stocks, or bonds. The contents of safe-deposit boxes are also not included in FDIC coverage. Cashier's checks and money orders issued by the failed bank remain fully covered by the FDIC.
Eligible business accounts from a corporation, partnership, LLC, or unincorporated organization at a bank are also FDIC-covered.
Much of the above information was selected from Investopedia definition of Financial Terms and is believed to be accurate but cannot be considered to be all inclusive and complete. It is a synopsis of a current item or term of interest The opinions expressed are mine and not to be considered an investment recommendation or solicitation of any specific product or program.
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