Filed under Money on October 30th, 2008:
What You Need to Know about the FDIC
With the Subprime Mortgage Crisis and the Housing Bailout plastered all over the news, many people have lost faith in their banking system. For the average person with a modest amount of money in the bank, there is no need to fear. In fact, your money is insured by the FDIC.
What is the FDIC?
The Federal Deposit Insurance Corporation or FDIC is a government institution that provides insurance on deposits for member banks. Chances are your bank is a member, and your deposits are insured up to $250,000. Each bank is insured separately so you could potentially have more than $250,000 insured if you were to spread it out among different banks.
Also, the ownership of the account is taken into consideration. You could have $250,000 in an account in your name and have a joint account with someone else with $250,000 in it and be insured for $500,000 at that bank. IRA’s are also insured up to $250,000. Until 2008, accounts were insured up to $100,000, in October of 2008 the limit was temporarily increased to $250,000 until the end of 2009.
Why do we need the FDIC?
The FDIC was created in 1933 in response to the Great Depression. Since so many people were withdrawing money from the bank in fear of losing it, the banks went into bankruptcy due to the withdrawal of all their deposits. To deter people from withdrawing all of their money from the banking system, the FDIC insures your money so you can feel safe knowing that if your bank goes under, your money will still be there.
However, this theory doesn’t always play out so perfectly. Many people fear not having immediate access to funds in case they need it, so they withdraw their money even though it’s insured.
What else does the FDIC do?
Member banks have to keep a certain percentage of liquid capital on reserve. If the bank falls below a certain point, the FDIC can take over the bank and run corrective measures to get it back on track.
What does the FDIC Insure?
The FDIC only covers money in deposit accounts such as:
- Checking Accounts
- Money Markets Deposit Accounts
- Certificates of Deposit
- Savings Accounts
What doesn’t the FDIC Insure?
- Stocks and Bonds
- Mutual Funds
- Things in Safety Deposit Boxes
- Money Market Funds
- Annuities such as Life and Homeowners Insurance
- Investments backed by the US Government
- Accounts in Credit Unions (Credit unions have their own Insurance in the NCUA)
For more information on deposit insurance, regulations and news, visit the FDIC website.