FDIC Insured Account
What it is:
An FDIC insured account is a bank account whose balance is covered by the Federal Depository Insurance FDIC) in the event of a bank failure.(
How it works/Example:
The deposits in banks and thrift institutions, supervises the risks associated with these insured and limits the repercussions on the economy when a bank or thrift institution fails.
The FDIC was created in 1933 as a result of the bank failures of the Great .
The FDIC insures up to $100,000 of the following kinds of deposits at FDIC-insured banks and thrifts.
- Checking accounts (including accounts)
- Certificates of CDs) (
- Certain retirement accounts on deposit at a bank or thrift
The type of account a depositor holds affects the amount of FDIC coverage he or she may have. For example, let's assume you have three accounts at XYZ Bank: a checking account holding $10,000, a second checking account holding $50,000, and a $60,000 CD, for a total of $120,000 on deposit.
If the accounts are all single accounts (single accounts are deposit accounts owned by one person), then the FDIC adds the account balances together and insures the total up to $100,000. In our example, that means $20,000 of your deposits are uninsured.
The situation changes if you hold the accounts jointly with another person. Because the other person has a right to withdraw money from the account, his or her share is separately insured by the FDIC. This means that in our example, your half of the accounts ($120,000/2 = $60,000) would be insured up to $100,000 and the co-owner's half (the other $60,000) would also be insured up to $100,000. No portion of the accounts would go uninsured.
Alternatively, the FDIC insures certain trust accounts up to $100,000 for each qualifying beneficiary (spouses, children, parents, siblings, grandchildren). The coverage applies to who get the account's assets only when the owner dies. Thus, if you held the $120,000 in a trust for your three grandchildren, the full $120,000 would have FDIC insurance because each beneficiary (each grandchild) receive $40,000 upon your death, and each would be insured up to $100,000.
It is important to that FDIC coverage is $250,000 per depositor in the case of certain retirement accounts. Thus, if your $120,000 were in one or more self-directed retirement accounts (typically IRAs, SEPs, Keogh accounts, "section 457" deferred compensation accounts and self-directed defined contribution plans), then those account balances would be added together and insured up to $250,000 (leaving no uninsured balance).
Why it matters:
The deposits on hand to satisfy nervous withdrawals. According to the FDIC, "no depositor has lost a single cent of insured as a result of failure" since FDIC insurance took effect on January 1, 1934.
This is not to say that the FDIC is a catch-all for investors. It is important to understand that the FDIC does not insure , , , life insurance policies, annuities, or any other types of that banks or thrifts may . The contents of a safe-deposit box are also not insured by the FDIC.
For more information about the FDIC, or to use the FDIC's Electronic Deposit Insurance Estimator (to determine whether you have adequate FDIC insurance) visit www.fdic.gov.