What Is FDIC Insurance?

The FDIC has protected bank deposits since 1934. But how does FDIC insurance work, what are the current coverage limits, and does FDIC protection apply to business bank accounts too?

Keep reading to learn how FDIC insurance works and what types of accounts are covered.

What Is FDIC Insurance & How Does It Work?

FDIC insurance is a government-backed insurance program that protects deposits held at FDIC-insured banks. If an insured bank fails, the Federal Deposit Insurance Corporation helps protect customers from losing covered funds.

FDIC protection applies to both personal and business deposit accounts, including business checking and savings accounts.

The FDIC was created during the Great Depression after thousands of US banks failed and many Americans lost access to their savings. When the program launched in 1934, FDIC coverage was capped at $2,500 per depositor. The program helped restore confidence in the US banking system and reduce the risk of widespread bank failures.

Today, FDIC insurance limits are significantly higher, though the exact amount of coverage depends on factors such as account ownership and account type.

Does FDIC Insurance Work If The Government Defaults On Its Debt?

As discussions around the US debt ceiling continue, some consumers and business owners may wonder whether FDIC insurance would still protect bank deposits if the federal government defaulted on its debt.

Historically, FDIC insurance has protected depositors since 1934, and no depositor has lost FDIC-insured funds due to a bank failure.

The FDIC is funded primarily through fees paid by FDIC-insured financial institutions rather than directly through taxpayer funding. Because of this structure, FDIC insurance protection is generally considered separate from the federal government’s day-to-day operating budget.

However, FDIC insurance only protects eligible deposit accounts held at FDIC-insured banks. Investments such as stocks, bonds, mutual funds, cryptocurrencies, and other securities are not FDIC-insured.

Do All Banks Have FDIC Insurance Coverage?

Most US banks are FDIC-insured, but not all financial institutions qualify for FDIC coverage. Banks must meet federal requirements and maintain FDIC insurance status to protect customer deposits.

In recent years, the FDIC has stepped in to manage several high-profile bank failures, including Silicon Valley Bank and Signature Bank in 2023. In these situations, the FDIC worked to protect insured depositors and oversee the transition process.

Are Credit Unions Covered Under FDIC?

Credit unions are not covered by the FDIC. Instead, eligible credit unions are insured through the National Credit Union Administration (NCUA) and the National Credit Union Share Insurance Fund.

NCUA coverage works similarly to FDIC insurance and is backed by the federal government. If you bank with a credit union, make sure it’s federally insured by the NCUA.

Are Online Banks Covered By FDIC Insurance?

Many online banks and fintech companies offer FDIC-insured accounts through partnerships with FDIC-insured banks.

Online banking services are generally just as safe as traditional brick-and-mortar banks, but it’s still important to confirm that deposits are FDIC-insured and identify which partner bank provides the coverage.

How Much Does FDIC Insurance Cost?

FDIC insurance doesn’t cost consumers anything. Coverage is automatic at eligible FDIC-insured banks.

The FDIC is funded through premiums paid by member banks and savings associations rather than through direct fees paid by account holders.

How To Tell If Your Bank Account Is Covered By The FDIC

Most banks in the US are FDIC-insured, including many online banks and fintech banking platforms that partner with FDIC-insured institutions.

Before depositing funds, confirm that your bank or banking provider is FDIC-insured or clearly states that deposits are protected through a partner bank. If you cannot verify FDIC coverage, proceed carefully.

FDIC insurance generally covers:

• Checking accounts
• Savings accounts
• Money market deposit accounts
• Certificates of deposit (CDs)
• Certain retirement and trust accounts
• Prepaid bank cards tied to insured deposit accounts

Types Of Deposits Not Covered By FDIC Insurance

Even at FDIC-insured banks, some financial products are not covered by FDIC insurance.

Products that are not FDIC-insured include:

• Mutual funds
• Annuities
• Life insurance policies
• Stocks and bonds
• Crypto assets
• Safe deposit boxes and their contents

US Treasury securities are also not covered by FDIC insurance, though they are backed separately by the US government.

Banks and financial partners are generally required to disclose when an investment product is not FDIC-insured. Watch for disclosures such as:

• “This product is not FDIC-insured.”
• “This product is subject to investment risk, including possible loss of principal.”
• “This product is not guaranteed by the bank.”

FDIC Limits & What They Mean

FDIC insurance covers deposits based on account ownership categories. The standard FDIC insurance limit is $250,000 per depositor, per ownership category, at each FDIC-insured bank.

Here’s what that means in practice:

• Individual accounts are generally insured up to $250,000 per owner.
• Joint accounts are typically insured up to $250,000 per co-owner. For example, a joint account owned by two people could qualify for up to $500,000 in total coverage.
• Different ownership categories may qualify for separate coverage limits at the same bank.
• Certain trust accounts may qualify for additional coverage based on the number of eligible beneficiaries.

For example, if you and a spouse share a joint account with a balance of $500,000, FDIC insurance would generally cover the full balance because each account holder is insured up to $250,000.

FDIC coverage rules can become more complex for trusts, business accounts, retirement accounts, and customers with multiple ownership categories, so it’s always a good idea to confirm coverage details directly with your bank or by using the FDIC’s deposit insurance estimator tool.

The Bottom Line On FDIC Insurance

FDIC insurance helps protect deposits held at FDIC-insured banks, including many personal and business checking and savings accounts.

Most banks in the US clearly advertise their FDIC-insured status online and at physical branch locations. Before opening an account or depositing funds, confirm that your bank — or its partner bank in the case of some fintech platforms — offers FDIC insurance coverage.

Understanding how FDIC insurance works can help you make safer and more informed banking decisions for both your personal and business finances.