What is FDIC Insurance and How does it Work?

The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by Congress. It is in charge of banking and consumer safety and maintains the stability to keep up the public’s confidence in the nation’s financial system.

The FDIC insures deposits and supervises the financial institutions for the safety and wellness of the deposits. It manages the receiverships and works to make the complex financial systems resolvable.

The History

In 1933, during the Franklin D. Roosevelt administration, the FDIC was established to solve the rising bank failures, and a nationwide crisis occurred in the 1920s and early 1930s (during the Great Depression).

The federal government stepped in as a temporary agency with emergency measures and established it. As a result, with popular support, the act was passed into law.

In January 1934, the FDIC began insuring the deposits, covering them up to $2,500. The FDIC became the federal regulator of state nonmember banks. Almost 7785 state banks were examined under FDIC auspices during the last three months of 1933 to ensure the application of deposit insurance.

The FDIC directly supervises and examines more than 5,000 banks and savings associations. It acts as the primary federal regulator of banks (chartered by the states, and have not joined the Federal Reserve System). It also stands as the back-up supervisor for the insured banks and savings associations.

Historical Facts

In July 1934, Mrs. Lydia Lobsiger was the first insured depositor to receive her payment of $1,250 at the closed Fon du Lac State Bank of East Peoria, Illinois.

It is important to note that since the establishment of FDIC on January 1, 1934, no depositor has lost a penny of insured funds due to crisis or banks’ failure.

Is it necessary to have an FDIC insured?

Usually, banks lend our deposited money out and make profits by investing them. Although they are the safe places to custody the money, we are not sure about what happens if the banks go into crisis. Thus, FDIC insured accounts will always remain safe and protected. 

The FDIC insures almost trillions of dollars of deposits in the U.S. banks. Today the standard insurance amount is $250,000 per depositor, per insured bank, and each account. However, there are certain limits for the coverage.  

What all are covered in the FDIC insurance?

  • Checking accounts
  • Savings accounts
  • Certificates of deposit (CDs)

Not Covered:
  • Mutual fund investments
  • Annuities (underwritten by insurance companies, but sold at some banks)
  • Stocks, bonds, treasury securities, or other investment products (whether purchased through a bank or a broker/dealer)

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