FDIC insurance guide: how it works, coverage limits, and more

The failures of Silicon Valley Bank, Signature Bank, and Credit Suisse in recent months have stoked fears of a banking crisis and put pressure on regulatory institutions to respond.

As political and financial leaders work to maintain the integrity of the banking system, individual depositors may be wondering if their funds are safe — and what guardrails remain in place to protect them in the event of a collapse.

The Federal Deposit Insurance Corporation is a crucial element of the U.S. banking system, making sure that depositors can still access funds in the event of a bank failure. In this article, we’ll take a look at how the FDIC works as well as the rules and regulations surrounding FDIC coverage.

What is the FDIC?

The Federal Deposit Insurance Corporation, or FDIC, is an independent agency created by Congress that insures deposits at member banks. Created in 1933, while the United States economy was in the midst of the Great Depression, the agency was an attempt by the federal government to increase the public’s trust in the nation’s financial institutions.

Today, the FDIC “examines and supervises financial institutions for safety, soundness, and consumer protection.” It also insures deposits up to a certain amount and performs other key functions to protect consumers and maintain their confidence in the banking system.

This is made possible by the Deposit Insurance Fund, which contains more than $125 million as of March 2023. The FDIC receives funding from multiple sources to ensure that it always has enough funds to respond to bank failures and other crises.

It’s worth noting that the FDIC doesn’t receive funding from Congress or from the depositors it protects. Instead, banks are required to pay premiums in exchange for coverage.

The FDIC also has a credit line of $100 billion from the U.S. Treasury. This is intended for unusual situations that go beyond the agency’s usual ability to cover losses. The FDIC leaned on this credit line for the first time in 1991 after the collapse of the Bank of New England.

Above all, the FDIC is backed by the full faith and credit of the United States government. To this day, no depositor has ever “lost a penny” on FDIC-insured deposits since the agency’s creation 90 years ago. 

What kinds of accounts are covered?

Not all types of accounts or deposits are FDIC-insured. Let’s take a look at which accounts are eligible for FDIC coverage:

• Checking accounts 
• Negotiation Order of Withdrawal (NOW) accounts 
• Savings accounts 
• Money Market Deposit Accounts (MMDAs) 
• Time deposits such as certificates of deposit (CDs) 
• Cashier’s checks, money orders, and other official items issued by a bank 

On the other hand, there is no FDIC coverage for these accounts and asset types:

• Stocks 
• Bonds 
• Mutual funds 
• Crypto assets 
• Life insurance policies 
• Annuities 
• Municipal securities 
• Safe deposit boxes (or their contents) 
• U.S. Treasury bills, bonds, or notes (the U.S. government backs these instead) 

It’s important to know whether the institution at which you have your account is FDIC insured. Even though the FDIC covers checking accounts, it only does so if the bank decides to pay for deposit insurance. Most major banks opt into FDIC coverage in order to maintain consumer confidence.

How much coverage is available?

The FDIC typically insures $250,000 per depositor, per ownership category, per institution. 

In other words, all the deposits a depositor has in the same ownership category at the same institution are added together and insured up to $250,000.

Couples with joint accounts get a total of $500,000 in coverage ($250,000 each). For revocable trust accounts, the FDIC covers $250,000 per owner per unique beneficiary.

According to the FDIC website, corporations, partnerships, and unincorporated entities get their own $250,000 limit. Those deposits don’t count toward the $250,000 limit of the individual owners. On the other hand, deposits from sole proprietorships are insured together with personal funds.

What if I deposit over the limit?

In the event of a bank failure, the FDIC only guarantees the amount of coverage described above.

However, the FDIC may decide to provide additional coverage depending on the circumstances. This came up after the recent collapse of Silicon Valley Bank (SVB), which was the second-largest bank failure in U.S. history.

Many of SVB’s depositors had more than $250,000 in deposits — Roku, for example, had nearly $500 million in SVB accounts. In this case, the FDIC, Treasury Department, and the Federal Reserve worked in conjunction to cover all deposits, even for clients who had deposited millions or hundreds of millions of dollars.

The FDIC has an interest in protecting depositors and maintaining consumer confidence in the banking system, so they may choose to cover all deposits in the event of a bank failure.

However, it’s important to note that there is no regulatory guarantee for deposits that go beyond the limit of $250,000 per depositor, per ownership category, and per institution.

Conclusion

The FDIC has a big job, especially in times when the U.S. and/or global economy is stressed. 

Even during economic uncertainty, depositors who use one of the country's 4,700 FDIC-insured institutions can expect at least $250,000 of their deposits to be backed. 

And remember: that limit only applies to each individual institution. High-value depositors may use accounts at several FDIC-insured banks to increase their total coverage.