October 11, 2016 in Investing

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?

What is FDIC?

The Federal Deposit Insurance Corp., or FDIC, 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.

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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.

Here is what is covered by FDIC insurance up to the limits:

But 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 5-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 5 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.

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Here is what is not covered by FDIC insurance: