What is FDIC insurance?

How FDIC insurance works

The Federal Deposit Insurance Corporation (FDIC) is both the primary regulatory agency for commercial banks and its account insurer. This combination of watchdog and protector has worked well for the most obvious reasons. By examining and evaluating commercial banks, FDIC has first hand knowledge of the operations, stability, and profitability of their institutions.

By having some measure of control over the “safety and soundness” of the banks they insure, the FDIC can more confidently issue their insurance coverage. This should make depositors more comfortable, too.

All banks who qualify for FDIC insurance have been deemed safe and sound by the agency. Certainly, FDIC encounters institutions enduring some problems. When they do, they offer suggestions – sometimes, mandates – to help correct issues that cause problems.

FDIC insurance is sometimes misunderstood. The critical issues are the maximum amount insured (usually $100,000) and the definition of “what” is insured. OK, so what is insured?

• Savings accounts
• Checking accounts
• NOW accounts
• Money market deposit accounts (MMA’s)
• Certificates of deposit (CD’s)

How is the maximum insurance calculated? This can be more complicated, but here is a simple outline.

• Single accounts = $100,000
• Joint accounts = $100,000 per co-owner
• IRA’s and some retirement accounts = $250,000 per owner

Update: Recent FDIC changes and how they affect you

If your bank fails and is FDIC insured, you will receive payments for your account balances up to these limits. But, remember any current interest earnings are not typically covered, as your “principal” is technically the insured amount. Should you have an account into which you deposit $100,000 and another on which you are a joint owner, also with a $100,000 balance, you should be insured for both accounts.