FDIC insurance

The FDIC, the Federal Deposit Insurance Corporation, is the US government agency that stands behind bank deposits. It was created in 1933 after a wave of bank failures, it is funded by premiums the banks pay rather than by depositors, and when an insured bank fails it moves the deposits to another bank or pays them out, usually within a few days. No depositor has lost a penny of insured deposits since the program began, which is why a savings account can be treated as safe in a way a brokerage account never is. The limit is $250,000 per depositor, per insured bank, in each ownership category, and those three "pers" decide whether a large balance is fully covered.

In a sentence

• "The savings account is at a bank with FDIC insurance, so the emergency fund is covered in full even if the bank fails."
• "A money market fund at a brokerage has no FDIC insurance; a money market account at a bank does."
• "Their joint savings holds $300,000 and is fully covered, because FDIC insurance counts $250,000 for each of the two owners."

How it works

Coverage is automatic. Every deposit account at an insured bank is covered from the day it is opened, there is nothing to sign up for, and the bank carries the cost. Whether a bank is insured is stated on its site, and the FDIC's website has a lookup by bank name. What is covered is deposits, not everything a bank sells.

The $250,000 limit applies separately in each ownership category at each bank, and the categories add up.

Interest counts toward the limit along with the balance, which is how a $250,000 CD grows past its coverage before it matures.

An example

A couple keeps $340,000 at one bank across four accounts.

The joint accounts total $300,000 against a $500,000 limit for two owners, the CD sits under the $250,000 single limit, and the IRA CD sits under the separate retirement limit, so every dollar is covered. Retitle the same $340,000 into one partner's name in a single savings account and only $250,000 is insured; the other $90,000 is at risk if the bank fails. The fix costs nothing: a joint title, a second bank, or both.

Why it matters

Deposit insurance is the reason cash that must be there on a bad day, the emergency fund, a down payment saved for next spring, the month's bills, belongs in a bank account rather than an investment. The value of an insured deposit does not depend on the bank's health, which is the one thing a depositor cannot judge from outside. The decision the term changes is where to keep a balance above $250,000: at a second bank, in a joint account or in a retirement category, rather than in one account at one bank because it is convenient.

The mistake it prevents is assuming coverage that is not there. A money market fund is not a money market account, a balance held in an app that is not itself a bank is insured only through the bank that holds it and only against that bank failing, and a bond fund bought at a bank branch can lose value with no insurance at all.

FDIC insurance versus NCUA insurance and SIPC protection

NCUA insurance is the same guarantee for credit unions, run by the National Credit Union Administration with the same $250,000 limits and the same government backing, so a federally insured credit union is as safe a place for deposits as an insured bank. SIPC protection at a brokerage is a different thing: it replaces securities and cash that go missing when a brokerage firm itself fails, up to $500,000 including $250,000 for cash, and it never covers an investment losing value, which is the ordinary risk of holding one. See Brokerage account for what sits on that side of the line.

Common questions

Is FDIC insurance the same as NCUA insurance? In effect, yes. Banks are insured by the FDIC and credit unions by the NCUA, with the same limits, the same ownership categories and the same federal backing. Look for the words Member FDIC at a bank and federally insured by NCUA at a credit union.

Is a high-yield savings account at an online bank FDIC insured? If the account is at an insured bank, yes, with the same $250,000 limit as any other savings account. An app that is not itself a bank holds your money at one or more partner banks, and the insurance is the partner bank's, so ask which bank holds the deposits and know that the coverage is against that bank failing, not against the app failing. See High-yield savings account.

Do I have to sign up for FDIC insurance? No. It applies to every deposit account at an insured bank automatically, the bank pays for it, and it does not depend on your balance, your income or how long you have been a customer.

What if I have more than $250,000? Spread it across banks, since each insured bank carries its own limit, or across ownership categories at one bank, since a joint account and a retirement account each have their own. Some banks will place a large deposit across a network of banks for you so that every part stays under a limit.

What happens to my money when a bank fails? The FDIC usually arranges for another bank to take over the deposits, and your account continues there, often by the next business day, with the same balance; direct deposits and autopays usually carry on. When no bank takes the deposits over, the FDIC pays the insured amount directly. Anything above the limit becomes a claim on the failed bank's assets, paid in part over time.

Go deeper

• How to build an emergency fund inside a monthly budget keeps the fund in a separate savings account, at face value and always available, which is what deposit insurance is for.
• Is it safe to connect your bank to a budgeting app? explains that a connected app reads balances and cannot move money, so the deposits stay at the insured bank whatever the app does.