The Truth About FDIC Insurance
By Tristan Ellis, Staff Writer
The Federal Deposit Insurance Corporation (FDIC) insures deposits of all U.S. banks and savings and loan institutions up to $250,000 per customer in the event of a bank failure. Retirement accounts are insured up to $250,000.
Account that are covered by FDIC Insurance:
• Checking accounts and money market deposit accounts
• Savings accounts that you can add to or withdraw from at any time.
• Certificates of deposit, or CDs, which generally require you to keep funds in the account for a set period of time.
Accounts NOT covered with FDIC insurance:
• Stocks, bonds and mutual funds.
• Investments backed by the U.S. government, such as Treasury securities and savings bonds.
• The contents of safe-deposit boxes.
• Losses due to theft or fraud at the institution. Generally bank insurance will protect against this loss.
• Errors made in your accounts by the banking institution.
• Insurance and annuity products, such as life, auto and homeowner's insurance.
Products that are easy to confuse because they have similar names are money market deposit accounts and money market mutual funds. Money market deposit accounts are deposits and are covered by FDIC insurance. Money market mutual funds are funds that invest primarily in short-term corporate bonds or government securities and are not deposit accounts insured by the FDIC.
While the basic federal insurance amount is $250,000 or $250,000 on retirement accounts more coverage can be achieved by maintaining accounts under different ownership categories such as separate ownership and joint ownership with a spouse or other family member.
Caution should be used when considering some FDIC insured CDs being offered by financial institutions or sold through brokers have unusual features that may result in the FDIC protecting only the principal during the term of the CD. It is possible that the interest offered could be exempt from the FDIC guarantee.
An example could be a five-year CD where the interest rate is variable and not fixed and has a crediting rate tied to equity movement. These products may have no guarantee other than the original deposit.
Fortunately, bank failures are rare events and because of the FDIC insurance in place the risk to depositors is non existence. However, make certain that your bank is insured and provides you with this protection. A simple inquiry to your bank is an easy way to make certain.