If you have savings in a bank, the Federal Deposit Insurance Corporation protects your money from a bank failure. In existence since the 1930s and the Great Depression, FDIC insurance -- which is paid for by the banks -- covers cash in savings and checking accounts as well as money market accounts and "time deposits." The agency boasts that no depositor has ever lost a penny of an insured deposit, but there is a limit to how much of your savings is insured at any single bank.
The FDIC was established by the Banking Act of 1933. Its purpose was to stop the runs on deposits that were bringing down many banks and savings and loans. Since the start of the Great Depression in 1929, more than 5,700 banks and savings and loans had failed, resulting in the loss of $1.7 billion in deposits. In the first six months of the FDIC's existence, deposit insurance was limited to $2,500. It then rose to $5,000. As of 2013, the limit is $250,000 per depositor per bank.
Individual states may require that banks chartered within their boundaries carry FDIC insurance. The federal government also requires that nationally chartered banks carry the insurance. Banks pay premiums, which go into an FDIC fund that pays out claims. FDIC insurance applies to cash in checking and savings accounts, certificates of deposits, cashier's checks and money market accounts.
Money Market Accounts
Most banks offer money market accounts to their customers. Money market accounts carry more restrictions than a typical savings account and often require higher minimum balances. They also pay higher interest rates. Many banks offer money market accounts that you can access simply by writing a check or using an ATM card. There is no penalty for early withdrawal as there may be for a certificate of deposit.
Money Market Accounts and Funds
It's wise to keep in mind the difference between a money market deposit account and a money market mutual fund. The latter invests assets in low-risk securities, such as U.S. government bonds. The FDIC does not insure money market mutual fund accounts. The insurance only applies to deposit accounts. Those people with more than $250,000 in deposits often split their funds between two or more FDIC-insured banks to avoid having uninsured savings.
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.