FDIC is short for Federal Deposit Insurance Corporation, created by the government in 1933 in the aftermath of the Great Depression. The FDIC protects the money you put in an FDIC-insured bank in case the bank goes out of business. The program has been very successful. Since it began, no depositor has lost a single penny due to a bank failure.
Most banks and savings associations in the United States are FDIC-insured. To find out whether your bank is FDIC-insured, you can call the FDIC on its toll-free number (I-877-275-3342), visit the FDIC web site, or look for the official FDIC sign at your bank.
FDIC Insurance Coverage Limits
Under the Emergency Economic Stabilization Act of 2008, FDIC insurance coverage increased from $100,000 to $250,000 for each depositor in any . This means that as long the total of all of your deposit accounts in one bank does not exceed $250,000, you're covered. Deposits in separate branches of an insured bank aren't insured separately. However, deposits in one insured bank are insured separately from deposits in a different insured bank.
The $250,000 increase in FDIC insurance coverage is in effect through December 31, 2013. On January 1, 2014, the insurance coverage amount reverts back to $100,000 per depositor per bank. This change will apply to all account categories except Individual Retirement Accounts (IRAs) and certain other retirement accounts, which will remain at $250,000 per depositor.
The Deposit Insurance Fund
The FDIC must maintain a certain amount of money in order to pay depositors if their bank fails. This is the Deposit Insurance Fund (DIF), which is funded by charging FDIC-insured banks an insurance premium. Each bank is charged based on the balance of the bank's insured deposits and the degree of risk the bank poses to the fund.
When a bank fails, the FDIC must liquidate the bank's assets, which have necessarily lost substantial value, and must also pay the depositors the full amount of their deposits up to the insured amount. This represents a cost to the DIF.
Due to all of the recent bank failures, the DIF reserves were seriously depleted. In August 2009, the FDIC estimated that additional bank failures would exceed the amount in the DIF. The FDIC voted on a special assessment plan to require banks to prepay three years of insurance premiums to avoid insolvency and replenish the DIF.
Can the FDIC Go Bankrupt?
The FDIC is a corporation and, like any other corporation, technically it can go bankrupt. In fact, there have been many stories circulating that have suggested this possibility. However, the FDIC has additional resources to draw upon to avoid such a drastic measure. In addition to demanding special assessments from FDIC-insured banks, as discussed above, the FDIC has the ability to borrow up to $500 billion from the U.S. treasury.
In addition, the FDIC is backed by the "full faith and credit of the United States government." This means that the resources of the U.S. government stand behind FDIC-insured depositors and, even if the FDIC loses all of its money due to bank failures, the federal government will cover any losses.
Questions for Your Attorney
- If I have a role in someone's estate, say, as an executor or a trustee, and I'm named on accounts in that capacity, are my personal accounts in the same bank separate for purposes of FDIC insurance coverage?
- My bank just failed - could you help me with recovering funds from the FDIC?
- I'm concerned as to which types of accounts and financial products are covered by FDIC insurance - can you help me with this question when we review my estate plan?