Does the FDIC really have 99 years to pay back insured deposits if a bank fails?

Does the FDIC really have 99 years to pay back insured deposits if a bank fails?

What is the FDIC?

FDIC stands for Federal Deposit Insurance Corporation. It was formed in the 1930s in response to the banking crashes that accompanied the Great Depression. It’s designed to keep America confident in its banks, but it also provides real-world safeguards for your money by doing precisely what its name implies: insuring your bank deposits.1 During the 2008 housing crisis, the FDIC took control of failing banks, protecting billions of dollars in assets.2

Just like you pay car insurance premiums, American banks pay premiums to the FDIC. The FDIC in turn uses that money, plus other federal funds, to repay customers if a bank fails. The agency insures most American banks, making it responsible for trillions of dollars in deposits. It also regulates those banks, monitoring their health in an effort to avoid collapse.1

The FDIC insures several categories of deposit accounts. That includes what the agency calls single accounts, which covers checking accounts, savings accounts, money market accounts and certificates of deposit (CDs).3 But investments like stocks, bonds, mutual funds and other equities are not covered.4

The FDIC also limits how much money can be insured in a given account, meaning there are limits to what you can be paid back in the unlikely event that your bank closes. By getting to know the FDIC limits and how they work, you’ll have the know-how to make the system work for you.

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What to Do in Case of Identity Theft

When you notice suspicious activity on your bank account, report your loss to your financial institution and local law enforcement authorities right away. The FDIC also recommends notifying your local, state, or federal consumer protection agency. Use this directory to find the contact information for your state’s consumer protection office.

By acting quickly, you increase your chances of recovering your lost funds and help local authorities protect other members in your community. Some best practices to catch identity theft early are to check your monthly bank statement every month for any suspicious activity. If you receive paper copies, contact your bank right away if you do not receive one by its usual arrival date. Identity thieves may try to intercept or divert account statements to get access to your funds.

2. The FDIC Protects You Against Bank Failure

The FDIC launches into action when an insured financial institution fails. When a bank goes on the fritz and is unable to repay the deposits of its customers, the FDIC does a few things. The first action is to notify the customers and the public of the bank’s closure. The second is to make sure depositors are protected up to the insurance limits. It does this in one of two ways.

In most cases, the FDIC works with a healthy bank to assume the insured deposits of the failed financial institution. If this option isn’t available, the FDIC will pay depositors directly.

The FDIC does not protect depositors against loss from cybercrime or other fraud. The banks themselves are responsible for insuring against such theft losses, whether physically at the bank or in cyberspace.

It’s also important to understand which of the dollars you associate with your bank are FDIC insured. The FDIC protects your deposit accounts, not your investments. Here’s what’s covered and what isn’t:

Covered Not Covered

Checking accounts

Stocks and bonds

Savings accounts

Mutual funds

Money market deposit accounts

Insurance policies

Time deposits, such as CDs

Annuities

Negotiable Order of Withdrawal (NOW) accounts

Federal or municipal securities

Bank-issued cashier’s checks and money orders

Safe deposit boxes or their contents

Resources

The FDIC provides a wealth of resources for consumers, bankers, analysts, and other stakeholders. Browse our collection of financial education materials, data tools, documentation of laws and regulations, information on important initiatives, and more.

News

The FDIC publishes regular updates on news and activities. Keep up with FDIC announcements, read speeches and testimony on the latest banking issues, learn about policy changes for banks, and get the details on upcoming conferences and events.

How to guarantee all of your deposits are insured

Depending on your circumstances you might be able to keep your bank deposits insured by keeping your cash in different ownership categories.

For example, joint account ownership offers more protection than single account ownership because each account owner is insured up to $250,000. So, if a couple had $500,000 in joint savings at the same bank, their money would be insured by the FDIC.

Trusts also afford more protection. If you have a revocable trust, as many as five beneficiaries are insurable for up to $250,000 each.

Spreading your money around to different FDIC-insured banks is another way to maximize insurance protection. There are bank networks that can do that for you.

The table below shows how different account ownership categories can affect your deposit insurance coverage.

Different types of account ownership Insured Uninsured
Account holder A (single ownership) Savings: $50,000 CD: $250,000 $250,000 $50,000
Account holder B (joint ownership) Savings: $150,000 CD: $325,000 $500,000 $0
Account holder C (revocable trust: up to 5 beneficiaries insured for up to $250,000) Beneficiary 1: $250,000 Beneficiary 2: $250,000 Beneficiary 3: $250,000 Beneficiary 4: $250,000 Beneficiary 5: $250,000 $1.25 million $0

What isn’t covered by FDIC insurance?

Not all accounts are covered by the FDIC, even if they’re held with an insured bank. More specifically, here’s what isn’t protected.

  • Stock investments
  • Bond investments
  • Mutual funds
  • Life insurance policies
  • Annuities
  • Municipal securities
  • Government securities
  • Safe deposit boxes and their contents
  • U.S. Treasury bills, bonds and notes

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Why the FDIC was created

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 to protect depositors.

“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.”

What is the FDIC insurance limit?

When the FDIC was first established, the insurance limit was just $2,500 per individual making a bank deposit. Over the decades that followed, that limit increased seven different times due to inflation, economic crises and other factors.

In response to the Great Recession in 2008, the Emergency Economic Stabilization Act temporarily increased the FDIC insurance limit to $250,000. Then in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act made that limit permanent.    

Image: mned_fdiclimitImage: mned_fdiclimit

You can have more than $250,000 insured

The $250,000 limit isn’t necessarily the maximum amount of money an individual can have covered by FDIC insurance.

The limit applies for each depositor, per FDIC-insured bank, per ownership category. This means that if you and your spouse have $500,000 in a joint savings account, each of you would be covered individually up to $250,000, making the entire balance insured.

And if you had $500,000 in the joint account and another $250,000 in a savings account with the same bank where you’re the sole owner, you’d get the full $250,000 insured on both accounts because they fall under different ownership categories.

You’d also be able to have accounts with multiple banks and get the full protection amount on each one.

Checking your FDIC coverage

Bank failures are unlikely.5 But you can count on the FDIC to do its job. It even offers a handy tool to help you calculate your insurance coverage. If you find your accounts go beyond the FDIC’s coverage limits, consider asking your bank if it offers additional insurance or talking to an expert about what you can do.

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