The Great Depression resulted in the failure of thousands of U.S. banks. Many of those banks never reopened, leaving their depositors holding the bag. That financial crisis spurred the United States Congress to create the Federal Deposit Insurance Corporation. FDIC insurance adds a welcome layer of security to your savings account, but not all funds in your bank are covered by FDIC insurance. It only takes a few simple steps to ensure your savings are really safe.
Make sure your bank is a member of the FDIC. Most banks that are chartered in the United States are FDIC members, but membership is not mandated by law. With the proliferation of online banking, a number of banks with overseas charters offer banking services to U.S. residents without FDIC coverage. The FDIC maintains an up-to-date online database of all member banks (see Resources). When in doubt of a bank's membership status, check with the FDIC before opening an account.
Be aware of the total amount of your deposits in all of your bank accounts. Your funds are insured up to a total of $250,000 per deposit ownership category. If you have less than $250,000 on deposit at your FDIC-insured bank, all of your deposits are insured. Your savings may be covered for more than $250,000 if your deposits are in different ownership categories. For example, you may have $250,000 in a certificate of deposit in a single account in your name only. You may also have $250,000 in a joint money market checking account held in the name of yourself and your spouse. Since your funds are in two different types of ownership categories, both accounts are fully insured.
Check with your banker to verify the FDIC insurance status for the type of account you use for your savings. The FDIC insures traditional deposit accounts, but many banks offer investment products and services that are not insured. Some of those products have similar names. For example, your deposits in a bank money market checking account are insured by the FDIC, but deposits into a money market mutual fund are not insured. Cash deposited into your bank savings account is FDIC-insured. The FDIC does not insure cash you place into your bank safe deposit box.
- Banks may use different names for their physical locations and their online presence, but they are still the same bank. The $250,000 limit applies to all of the same category accounts held the same bank.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.