Federal Deposit Insurance Corporation (FDIC) - Explained
What is the FDIC?
Written by Jason Gordon
Updated at April 25th, 2022
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What is the Federal Deposit Insurance Corporation?
The Federal Deposit Insurance Corporation (FDIC) is an autonomous federally-controlled agency that backs deposits in the banks in case of bank failures. It was formed in 1993 to restore public confidence and to promote the financial systems growth through implementing effective banking practices. Up till now, the agency insures the deposits of more than $25,000 per depositor account (if the depositors institution is a member firm). Consumers must ensure that FDIC insures their institution.
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How Does the FDIC Work?
The FDIC was formed to avoid the uncertainty and resultant run on the banks that resulted during the great depression. During this period, many customers, afraid about the bank closures and uncertainty, rushed to withdraw their money. Because of sudden fear and large number of customers, many banks were unable to cater to the rush of withdrawal requests. Customers who withdrew first recovered their assets, while those who waited lost their money. The FDIC avoids this situation by ensuring a deposits safety, irrespective of the banks condition. The FDIC covers 100% of checking, savings, and money market accounts, as well as CDs (certificates of deposit). Coverage for trusts and IRAs (Individual retirement accounts) is limited. The FDIC does not cover mutual funds, life insurance, annuities, bonds and stocks, or safe-box deposit contents. Cashiers checks and money orders issued by the closed/failed bank will be covered. Note: The FDIC does not insure banks against theft, fraud or the like.
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