Federal Deposit Insurance Corp. (FDIC): Definition & Limits

What Is the Federal Deposit Insurance Corp. (FDIC)?

The Federal Deposit Insurance Corp. (FDIC) is an independent federal agency insuring deposits in U.S. banks and thrifts in the event of bank failures. The FDIC was created in 1933 to maintain public confidence and encourage stability in the financial system through the promotion of sound banking practices.

As of 2023, the FDIC insures deposits up to $250,000 per depositor as long as the institution is a member firm. It is critical for consumers to confirm whether their institution is FDIC-insured.

The primary purpose of the FDIC is to prevent "run-on-the-bank" scenarios, which devastated many banks during the Great Depression. For example, with the threat of the closure of a bank, small groups of worried customers rushed to withdraw their money in those years.

After fears spread, a stampede of customers, seeking to do the same, ultimately resulted in banks being unable to support withdrawal requests. Those who were first to withdraw their money from a troubled bank would benefit, whereas those who waited risked losing their savings overnight. Before the FDIC, there was no guarantee for the safety of deposits beyond the confidence in the bank's stability.

Understanding the FDIC

Because practically all banks and thrifts now offer FDIC coverage, many consumers face less uncertainty regarding their deposits. As a result, banks have a better opportunity to address problems under controlled circumstances without triggering a run on the bank.

In case of bank failure, the FDIC covers deposits up to $250,000, per FDIC-insured bank, for each account ownership category such as retirement accounts and trusts. This sum is adequate for the majority of depositors, though depositors with more than that sum should spread their assets among multiple banks.

Example 1:

If you have $200,000 in a savings account and $100,000 in a certificate of deposit (CD), you have $50,000 uninsured.

Example 2:

If a couple has $500,000 in a joint account, as well as $250,000 in an eligible retirement account, the entire $750,000 would be covered by the FDIC, as each co-owner's share in the joint account is covered, and the retirement account is a different account category.

The FDIC provides a helpful interactive tool to check whether assets are covered.

What the FDIC Covers

Checking accounts, savings accounts, CDs, and money market accounts are generally 100%-covered by the FDIC. Coverage extends to individual retirement accounts (IRAs), but only the parts that fit the type of accounts listed previously. Joint accounts, revocable and irrevocable trust accounts, and employee benefit plans are covered, as are corporate, partnership, and unincorporated association accounts.

FDIC insurance doesn't cover products such as mutual funds, annuities, life insurance policies, stocks, or bonds. The contents of safe-deposit boxes are also not included in FDIC coverage. Cashier's checks and money orders issued by the failed bank remain fully covered by the FDIC. 

Eligible business accounts from a corporation, partnership, LLC, or unincorporated organization at a bank are also FDIC-covered.

Filing a Claim

A customer can file a claim with the FDIC as early as the day after a bank or thrift folds. The request can be submitted online through the FDIC website. By calling 877-275-3342 (1-877-ASKFDIC), bank customers can receive personalized assistance at no cost.

Note that the FDIC only insures against bank failures. Instances of fraud, theft, and similar loss are handled directly by the banking institution. The FDIC has no jurisdiction over identity theft.

Special Considerations

While banks are covered by the FDIC, deposits in credit unions are backstopped by the National Credit Union Share Insurance Fund (NCUSIF). The fund is regulated by the National Credit Union Administration (NCUA) and also insures individual accounts up to $250,000. 

The Bottom Line

The FDIC insures deposits in U.S. banks and thrifts in the event of a bank failure or run. It was created during the Depression to bolster consumer confidence and encourage stability in the financial system. The agency insures deposits up to $250,000 per depositor, as long as the institution is a member firm. It's important to confirm whether a banking institution is FDIC-insured before opening an account or making a deposit there.