What Is FDIC Insurance + How Does It Work?

The Federal Deposit Insurance Corporation (FDIC) is an independent government agency that oversees financial institutions to keep consumers safe and banks stable. The primary way it accomplishes both is with FDIC insurance, which covers consumers’ deposit accounts up to a standard limit of $250,000.

This insurance protects people against bank failures and collapses with most banks, including traditional and online ones.

What is FDIC insurance?

The FDIC was created in 1933 to “maintain stability and public confidence in the nation’s financial system” when we were in the thick of the Great Depression. When the Depression started, depositors got understandably nervous about the state of the economy and pulled their money out of banks, which ultimately caused thousands of institutions to fail (a phenomenon known as a bank run).

In response, President Roosevelt passed the Banking Act of 1933, and the FDIC insurance program was up and running by 1934. Today, FDIC insurance protects each depositor up to $250,000 per account ownership category, per banking institution.

Why FDIC insurance is important

Prior to the creation of the FDIC, there was no failsafe against lost funds, and this didn’t give Americans much reason to have faith in the financial system. Since its creation, no depositor has lost a single cent of their covered funds due to a bank failure.

If you put your money into a deposit account at an FDIC-insured bank and that bank fails for some reason, you have a government-secured insurance policy that guarantees your funds.

What banks it protects

Most banks are FDIC members, including traditional brick-and-mortar banks, online banks, and neobanks with bank charters. If a bank is covered, you’ll typically see a logo like the one above on its website.

Many financial technology companies (fintechs) are not strictly banks but financial or banking platforms that typically operate through other chartered banks. So, a fintech might not have its own FDIC insurance but is generally still insured under its parent bank. If you’re considering opening an account with a fintech, find out what bank it issues accounts and offers insurance coverage through (for example, UFB Direct is a banking platform operated by Axos Bank).

To confirm your bank is FDIC-insured, use the FDIC’s BankFind tool to search it by name or website address and find its certificate.

FDIC coverage

Account types

In general, any deposit account you open with an insured bank will be covered by FDIC insurance. This includes

• Savings accounts
• Checking accounts
• Money market accounts
• Certificates of deposit (CDs)

Coverage also extends to items a bank issues, like cashier’s checks and money orders.

But FDIC insurance doesn’t protect every type of account you can open with a financial institution. Products that aren’t covered by FDIC insurance include:

• Stocks, bonds, or mutual fund investments
• Life insurance policies
• Safe deposit boxes (and anything you’ve put inside)
• Annuities or municipal securities
• U.S. Treasury bills, bonds, or notes

There are many different ownership categories, but the most popular ones are single accounts, joint accounts, certain retirement accounts, and trust accounts. You can see the full list of account ownership categories here.

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Coverage limits

The standard FDIC coverage limit is $250,000. This is per depositor, per FDIC-insured bank, and per ownership category. This is the limit you’ll find at the majority of banks.

If you have multiple accounts with one bank, all insured deposits will be counted under your total coverage.

The easiest way to calculate your FDIC coverage is to use the FDIC's Electronic Deposit Insurance Estimator (EDIE). This estimator allows you to calculate the total amount of insurance coverage available for your personal accounts, including single and joint bank accounts, retirement accounts, business accounts, and even deposits held by public unions.

To use EDIE to calculate your FDIC coverage, you will need your bank name, details about your account type, account balances, and deposits.

Joint accounts

FDIC insurance applies per account ownership category — not per account. So, if you have multiple accounts of the same type at one bank, that insurance limit is applied to your total deposits. This also means joint accounts can qualify for separate and extra coverage.

Let’s say you keep your money at Quontic Bank, where you have a joint checking account, two individual savings accounts, and an individual money market account.

Your single accounts, the two savings accounts and the money market account, fall under the single ownership category. You would have $250,000 in FDIC insurance protection for all three combined.

However, the joint checking account is insured separately because it falls into a different account ownership category. As a result, it would receive its own FDIC coverage up to the allowed limit of $250,000 per co-owner, per institution — or $500,000 total.

Extended coverage

There are a few scenarios where you can get more than $250,000 in FDIC insurance on one account.

For one, trust accounts can be protected by $250,000 in coverage per beneficiary as long as they meet certain criteria. So if you and your five siblings are all equal beneficiaries of a revocable trust, and the bank holding that trust goes under, you’ll each be guaranteed up to $250,000 for $1.5 million in total FDIC insurance.

Another way to qualify for extended coverage is through accounts that use cash sweep programs, which you’ll often see with deposit accounts you can open through brokerages. Wealthfront is one example. The Wealthfront Cash Account is a cash management account that offers up to $8 million in FDIC insurance coverage, which is possible because the brokerage partners with 32 different FDIC-member banks to hold deposits. When you deposit money into this account, Wealthfront distributes it to one of its partners for safekeeping. If your balance is over $250,000, it’ll reroute the extra to another partner bank, then another, and so on.

What happens if you lose funds

If things take a turn for the worse at your bank and insurance kicks in, you won’t need to wait long to get your money. There’s an oft-heard myth that the FDIC can take up to 99 years to get your money back to you, even if it’s lost in a covered circumstance. Although the FDIC doesn’t impose strict time limits on itself, it is bound by federal law to get your funds back to you “as soon as possible.”

Its goal is to have your insured funds returned by the next business day or within a few days, either through a new account at another insured bank or a check.

What about fraud?

FDIC insurance is not designed to protect against fraud — just bank failure. That said, you will typically only be responsible for up to $50 in unauthorized electronic funds transfers if your account is compromised (through fraud, theft, unapproved access, etc.). However, that isn’t your FDIC insurance coverage at work. This coverage is due to the Federal Reserve’s Regulation E.

FAQs

Bottom line

The Great Depression was financially devastating, but it resulted in a system we can still rely on today. Thanks to FDIC insurance, we can rest easy knowing our bank accounts are protected and we can’t lose our money up to coverage limits. In the unlikely event your bank fails, you’ll get your money back.

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