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How the FDIC protects your money

Perhaps one of the most ubiquitous signs in the banking world is "Member FDIC." Ever wonder what it means?

The Federal Deposit Insurance Corp. insures deposits of virtually all U.S. banks and savings and loan institutions up to $250,000 per customer (individual or business) in the event of a bank failure. Retirement accounts are insured up to $250,000.

Two products that are easy to confuse because they have similar names are money market deposit accounts and money market mutual funds. MMDAs 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.

Here is what is covered by FDIC insurance:

  • Checking accounts, Negotiable Order of Withdrawal, also called NOW accounts (checking accounts that earn interest) and money market deposit accounts, also called MMDAs (savings accounts that allow a limited number of checks to be written each month).
  • 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.

Here is what is not covered by 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. Even though the word "deposit" appears in the name, under federal law a safe-deposit box is not a deposit account -- it's a well-secured storage space rented by an institution to a customer. If you are concerned about the safety or replacement of items you put into a safe-deposit box, ask your insurance agent whether your homeowners or renter's insurance policy covers your safe-deposit box against damage or theft.
  • Losses due to theft or fraud at the institution. These situations are often covered by special insurance policies that banking institutions buy from private insurance companies.
  • Errors made in your accounts. In these situations, there may be remedies for consumers under state contract law, the Uniform Commercial Code and some federal regulations, depending on the type of transaction.
  • Insurance and annuity products, such as life, auto and homeowner's insurance.

While the basic federal insurance amount is $250,000, you can receive more than $250,000 of coverage if your funds are maintained in different ownership categories, according to the FDIC. For example, you can have coverage of up to $250,000 for your individual accounts at the bank, another $250,000 for your share of joint accounts at the same bank and yet another $250,000 for your retirement accounts there.

Be aware that some FDIC-insured CDs being offered by financial institutions or sold through deposit brokers have unusual features that may result in the FDIC protecting only the principal during the term of the CD.

An example is a five-year CD, whose interest rate isn't fixed but varies with the ups and downs of the stock market, that has no guaranteed minimum interest rate, and pays only when the CD matures in five years instead of accruing interest on a daily or monthly basis. The FDIC says federal insurance would cover only your principal, not any interest, because there is no specific, guaranteed interest earned under terms of the contract.

The National Credit Union Administration is the federal agency that insures deposits in federal credit unions and state credit unions that are federally insured. Deposits of member institutions are insured up to $250,000 per customer (individual or business.) As with FDIC insurance, retirement accounts are also covered up to $250,000.

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