How the FDIC protects your money


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The coronavirus pandemic has led to more than 26 million unemployed Americans. Economic anxiety is high. Right now, it’s easy to feel concerned about the safety of your money.

But if your money is deposited at a bank, here’s the good news: your cash is safe in federally insured banks. Deposits in banks are insured by the Federal Deposit Insurance Corp., or FDIC,  up to $250,000 per customer in the event of a bank failure.

Even recently, the federal agency reiterated that consumers should feel secure in storing their money in banks. “FDIC-insured banks remain the safest place to keep their money,” the federal agency said in a statement.

What is FDIC insurance?

The FDIC was created in 1933 to protect consumers when financial institutions fail and are forced to close their doors. During the Great Depression, insurance for banks was not available. So when banks failed, Americans lost their savings. Now when banks fail, the FDIC steps in.

“Bank failures are unusual,” says Mark Hamrick, Bankrate’s senior economic analyst and Washington bureau chief. “But when they happen, affecting covered institutions, FDIC coverage is important.”

The FDIC insures up to $250,000 per depositor, per FDIC-insured bank, per ownership category. An individual account is insured separately from a joint account.

The government agency has historically paid insurance within a few days of a bank failing, according to the FDIC’s FAQ page.

What institutions are covered by FDIC insurance? 

The vast majority of banks offer deposit customers FDIC insurance, including online banks.

Anand Talwar, deposits and consumer strategy executive at Ally Bank, says online banks are like any other bank. “If the bank is a member of the FDIC, like Ally Bank, their deposits are covered,” says Talwar. “We just don’t have brick-and-mortar branches.”

It is rare for a bank not to have FDIC insurance. There are exceptions. Bank of North Dakota, for example, is not FDIC-insured. Instead, it is backed by the state of North Dakota.

Credit unions, which are regulated differently from banks, also have their own insurance. The insurance is similar to the one provided by the FDIC, protecting $250,000 for each account and owner, Hamrick says.

The National Credit Union Share Insurance Fund, as it is called, was created by Congress to insure deposits in member credit unions. It is administered by the National Credit Union Administration, or NCUA, which charters, regulates and monitors federal credit unions.

FDIC insurance: What’s covered and what isn’t

The government-backed insurance plan covers traditional bank deposit products. It insures checking accounts, savings accounts, certificates of deposit and money market accounts.

You don’t want to exceed the limits, however. For example, if you have $175,000 in a savings account and $200,000 in a CD at the same bank, that leaves $125,000 of deposits uninsured.

The FDIC does not cover investments. Even if you purchase stocks, bonds, mutual funds, annuities and life insurance policies through a bank, your money is not protected. It doesn’t cover the contents of your safe-deposit box either.

Payment providers, such as PayPal and Venmo, are not banks and do not qualify for FDIC insurance. There are some minor exceptions. On its website, PayPal states that one of its products, PayPal Cash Plus, deposits funds in FDIC-insured institutions. PayPal-owned Venmo is not a bank and would not qualify, Hamrick says.

“These payments processing firms are pipelines through which money passes, not banks,” he says.

Bottom line

Financial concerns are rising as the impact of the coronavirus pandemic is widespread and growing, but the FDIC protects consumers and their deposits if a bank fails. Your bank deposits in your checking or savings account are protected by federal banking regulations.

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